What Are The Different Types of Loans?

What Are The Different Types of Loans?

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If you’re ever in need of some cash, it can be quite easy to take out a loan to cover what you need. So long as you have a decent credit score, you will be able to take out some money, because the credit score is as good as proof that you will pay the money back when you can.

There are several different types of loans that you can take out, depending on exactly how much money you need to access and your ability to pay that money back. 

You will likely have heard of most types of loan already. Mortgages, student loans, small business loans, car loans and so on. Most of these loans are pretty clear-cut in terms of what the money raised is for, and they tend to fall into customary ways of how you are given the loan and how you pay it back.

But, loans don’t only differ in terms of what they are for. They also differ in terms of how they can be obtained, how much interest they charge, and in their repayment plan.

We’ll be covering several different types of loans in this article. (We won’t go through absolutely every type for the sake of brevity.) Please feel free to scroll ahead to any section of particular interest to you. 

Personal Loans

Personal loans are primarily for paying for expensive items that you might need to buy but wouldn’t normally have the funds for in your checking account.

Examples of such items may include the likes of furniture or large household appliances.

If you’re thinking of taking out a personal loan,  you will typically need a credit score of at least 610 points, and sometimes as many as 640 points, although this can vary depending on the provider. 

Repayment is usually on a monthly basis, and it is usually classed as an unsecured loan. You are usually offered several years in which to pay back the loan.

You will be charged interest on any personal loan that you take out, but this can vary depending on the provider and on how good your credit score is. Interest rates on unsecured personal loans typically range between 5% and 36%.

Credit Card Loans

Simply put, a credit card loan is basically any money you owe on your credit card.

A credit card can be used for the same sort of things as a personal loan if you wish, but people tend to use it for smaller items that tend to be lower in price. And they tend to use it again and again, accruing more and more debt.

As with any other kind of loan, interest can be charged. Getting and using a credit card is a great way to start building your credit score if you don’t have a particularly good credit score just yet. 

The key difference between credit card loans and unsecured personal loans is that whereas a personal loan is meant to be paid back over a fixed period of time, credit card debt can be owed through your entire lifetime.

A credit card loan typically requires a minimum monthly repayment, which can be as little as $5. And so long as you keep making your minimum payments, you will typically be offered a higher level of credit, because you are proving that you will pay the money back.

Secured Loans

A secured loan is another kind of loan entirely. With a secured loan, you pledge some assets as collateral for the loan. This way, if you do not pay off the loan, the lender can sell the asset you offered as collateral to pay off the loan.

Examples of secured loans include mortgages, car loans, and home equity loans. Secured loans are handy when you need a loan for a very high amount of money.

Wrap Up

So as you can see, there are a wide variety of loans to choose from, and one for every set of needs. Just go for what feels best for you.

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