A loan is the borrowed money that is returned in installments. Loans are also taken on a collateral basis. There are many benefits of taking a loan. It has become a need now. You can take a loan to buy a new car or to pay your expenses. From starting a business to expanding it all can be managed by taking a loan that you can return later. But before you ask for a loan from a bank it is important to know the different types of loans. You first need to observe the amount of money you require and then the purpose of taking this money. The next step is to check which category of loan your requirements and needed amount of money fall. If you want to get more details do check out https://tomsdaily.news
4 Common Types of Loan
Here we have gathered for you the four most common types of loans.
1. Personal Loans
Personal loans are versatile loans that are lent for small purposes for instance
- to pay for home renovations
- to buy a small car
- to consolidate debt
- to pay bills
- to plan an event like a wedding etc.
You pay for personal expenses by taking personal loans. There is not any rule to spend the personal loan money on a specific thing. You can use it for unlimited purposes. But some lenders specify the use of money for you.
Well, there are two types of personal loans.
Secured Personal Loans are the ones that demand collateral on the amount of money you borrow. This collateral can be any asset including a house, jewelry, and property. They have the right to sell or use this asset if you do not pay back the loan.
Secure personal loans are beneficial in the way that they have less or no interest on the money.
The second type of personal loan is Unsecured Personal Loan. As by name you can guess that such loans do not need any collateral. You can get an unsecured personal loan without involving your assets. But there is a drawback of unsecured personal loans. You have to pay high interest on such loans because the lender’s money is at risk. If you want to read more updated and news regarding finance check out tomsdaily.news
2. Auto Loans
Auto loans are the secured loans that are lent to purchase a car or a truck. Vehicles like cars cost thousands of dollars and some people cannot afford them. Auto loan lenders provide the facility to purchase a car by lending money. The same vehicle that is bought from the money of auto loan is kept as collateral. Monthly payments to pay back the loan can last from 3 to 6 years.
3. Mortgage Loans
If you are thinking of buying a house or a real estate property then you should select a mortgage loan. A mortgage loan is a type of loan that is lent to buy a house or a property. It is a secured loan that keeps the bought house or property as collateral. Such loans are long-term loans that can last approximately 30 years.
There are two types of the mortgage loan.
In Fixed-rate Mortgage lenders provide a fixed interest rate to the borrower. The shorter the terms are the longer the period will be. It can range from 10 to 30 years. The advantage of a fixed-rate mortgage is that it does not affect the budget of the borrower. The borrower can set up his budget accordingly and pay the amount at a fixed time.
Adjustable-Rate Mortgage is the second type of mortgage loan. In this type of mortgage interest can be expected to increase or decrease after some time. There are no fixed interests during the whole loan period. Factors like changes in market rates can cause the interest to increase or decrease.
4. Student Loans
Student loans are loans that are lent to students to pay the expenses of post-secondary education. Such expenses include books, tuition fees, supplies, and residence. Student loans can be federal or private. Private Student loans are lent by lenders like banks, schools, s or any agency. While Federal Student Loans are made by the federal government.
Final Verdict
You may have got idea about the four common types of loans. If you are thinking to take a loan first determine your purpose for which you require money. And then go for the relevant category of loan.