Different Types Of Loans Available

There are many different types of loans. The best type is dependent on the needs, financial status and credit of the borrower.

Home Loans

Conventional loans are offered by mortgage lending institutions. This type of loan might even be backed by a government agency such as the Federal Housing Administration or the U.S. Department of Veterans Affairs. This loan is effective for an individual interested in purchasing a home.

Payday Loans

Some online cash loans are also referred to as payday loans. The borrower writes a check or authorizes a debit from their bank account, to be cashed by the lender on their next payday. The finance charge and the loan must be paid simultaneously. The borrower can have the lender cash the check, pay back the loan in cash or pay the finance charge to extend the loan until their next payday. This type of loan is intended for individuals requiring cash quickly and is not intended to be used for the long term.

Installment loans

An installment loan is repaid on a set schedule over a specific period of time. The actual number of payments will vary according to the terms of each one. The term can be for only a few months or for a period of years. These are alternatives to payday loans since the repayment is structured and not a lump sum in a relatively short time frame. You can even apply for a cash loan online, which makes the process more convenient.  The credit rating of the borrower usually impacts both the interest rate and term for this type of loan.

Secured Loans

This type of loan requires property to be used as collateral to obtain the loan. If the borrower does not pay back the loan, the lender takes possession of the collateral. The amount of the loan and the interest rate are dependent on the value of the property used for collateral or leverage. The credit history and length of the terms are also considered. This type is usually secured with a house, vehicle, property, CD or savings account. This is an excellent way to finance a new business, make home repairs, purchase expensive equipment, pay medical bills, etc.

Unsecured Loans

An unsecured loan does not require any collateral. The income and credit history of the individual determine the size of the loan and the interest rate. This type of loan is also called a signature loan or a personal loan. This is a nice option for anyone with excellent credit and a good income. The funds are used in much the same way as with a secured loan.

Open-Ended Loans

This type of loan provides the borrower with a line of credit with a fixed limit. Once the funds have been repaid, the individual can continue to borrow money from the loan. The best example of an open-ended loan is a credit card. This type of loan can be used for anything from small purchases to major home repairs.

Close-Ended Loans

Once this type of loan has been repaid, the borrower cannot continue to borrow money. A few good examples are car loans, mortgages and student loans. Every time the borrower makes a payment, the loan decreases. This loan is intended for providing a specific amount of money one time only. A new loan must be approved for the borrower to obtain any additional funds.

The Home Equity Line of Credit

This is an option for homeowners only. The equity in the home is used to provide a line of credit. Once paid, it can be used over and over. This is a popular option for home renovations.

Given the above examples, it’s easy to see that borrowing money to cover bills and purchases isn’t limited to going to the bank. Here in the 21st-century, applying for a loan is as close at the nearest computer.