Every now and then, consumers have to seek financial help to achieve something. Loans are helpful because they enable the borrower to do things even without having the cash they require to achieve their objectives.
There are many types of loans with some specifically meant to help people achieve a certain objective. While others are more open-ended and the consumer is not compelled to spend the money on a specific thing.
Loans have been quite helpful since they have enabled many people and organizations to fulfill their dreams and expand their operations. It's essential to understand the different types of loans to know which one best suits your needs.
Here are some of the most common types of loans:
The term installment loans is the title given to commercial and personal loans advanced to borrowers. Installment loans include all loans that are repaid in regular and scheduled installments. Each payment made offsets a small part of the principal amount plus interests.
Mortgages are loan products that are designed specifically to help aspiring homeowners to own a home. An average home costs at least a few hundred thousand dollars. This means that many people will not be able to afford this sum all at once.
Mortgages meet this need and make it possible for a normal worker to own a home. Mortgages spread the cost of the house over an extended period. All the mortgage borrower has to do is to make monthly payments, and once all the payments are done, they then own the home.
Auto loans are loans that are used to purchase new or used vehicles. Most auto loans are repayable in 24 to 60 months, although recently, there has been an increase in uptake of loans repayable over longer durations of up to 72 months.
Most lenders, however, ensure that their loans do not exceed 60 months for used vehicles since older vehicles are riskier to finance. Auto loans are different from other types of loans because they are pegged on the value of the car.
The older the car gets, the more value it losses. As such, lenders have to protect themselves by ensuring they only finance valuable vehicles. For auto loans, consumers are advised to take shorter loans due to the quick depreciation of a car's value.
Most college students take student loans because they have low-interest rates and repayment starts after graduation. There are three main types of student loans: federally subsidized loans, federal unsubsidized loans, and private student loans.
Federally subsidized loans are meant to help students with dire financial needs. The government pays the interest for such loans as long as the student is still in school. Federal unsubsidized loans are available for the average students regardless of their financial status.
Federal unsubsidized loans have the same interest rates for all borrowers. The final type of student loan is private student loans. These types of loans are available to certain students that meet the requirements. The interest rates are higher than those of other student loans are but lower as compared to other non-student loans. The rates also vary from one institution to the next.
This type of loan is common among people or institutions with limited financial history. The loans are meant to build a credit history and ultimately improve individuals' or organizations' credit score. This helps them to access more loans, higher loan limits, and sometimes lower interest rates.
Loans from friends and family
Borrowing money from friends and relatives is also another type of loan. People mainly borrow from friends and family because they may not qualify or are not willing to take products from the financial markets. Moreover, loans from family and friends can be a source of conflict. As such, it is always a good idea to sign a promissory note if you enter into such an agreement.
Credit card loans are short-term loans that are advanced to the credit cardholder. They allow borrowers to buy products that they may not have the cash to purchase at the moment. Before taking these loans, however, be sure to review the interest rates and other fees charged.