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A loan is money you borrow with the agreement to pay it back, typically with interest. There are various types of consumer loans available to meet different needs, such as funding a major purchase, handling unexpected expenses, or achieving future goals. These loans vary in terms of repayment periods, loan amounts, and structure—some provide a one-time lump sum, while others work as a revolving line of credit. Each type is designed to offer flexibility and cater to specific financial needs.
If you need financial assistance, it is important to understand the various loan products on the market. How you intend to use the loan will influence the type of loan for which you apply. Below are several common loan types that you may need to cover various expenses.
Credit Builder Loan
Looking to boost your credit while saving money? Introducing the revolutionary Credit Builder Loan. By making fixed payments over six to 24 months, plus a small interest fee, to a reputable financial institution, you can start building a favorable credit record. Every payment is reported to the credit bureaus, enhancing your credit profile. The payoff? Once the term is up, the bank releases the funds to you, minus fees and interest, allowing you full control over your money.
Student Loan
Student loans can be used to cover education-related expenses such as books, housing, food, transportation, and tuition. These loans can come from either the federal government or private lenders. Repayment timelines for student loans are often flexible, with the federal government offering a range of income-driven payment plans based on borrowers' ability to repay.
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Personal Loan
Of all the loan categories, a personal loan is the broadest. Of all the types of loans, it also has the broadest terms. The terms on personal loans are broad and depend on how much you wish to borrow and your credit history. Whether or not you need to back the loan with collateral depends on if the loan is secured or unsecured.
Secured Personal Loan
Though rare, secured personal loans typically come with better terms, as the risk is minimal when the lender has collateral to cover the borrowed money. Because lenders assume less risk, you can likely score better interest rates and more lenient terms with a secured personal loan.
Unsecured Personal Loan
Unsecured personal loans are riskier for lenders, as the lack of collateral means there is no guaranteed path to financial recovery if you fail to repay the loan. Because of this, the terms on an unsecured personal loan are typically stricter than those of secured loans.
Credit Cards
Credit cards are essentially revolving lines of credit. The issuer extends you a certain amount, which you borrow against whenever you need to make a purchase. As you spend, your amount of available credit decreases. However, when you repay what you borrowed, your amount of available credit goes back up.
Credit cards do not come with repayment periods. Rather, you make a minimum monthly payment each month to remain in good standing. The interest rates on credit cards vary considerably and are largely dependent on your credit score.
Auto Loan
An auto loan is a type of funding that you can use to pay for a vehicle over an extended period, typically between two and seven years but can be as much as ten years. Most auto loans are secured, usually by the vehicle itself. What this means is that if you fail to make your payments, the lender can repossess the vehicle to get its money back.
The terms and rates on an auto loan vary and depend largely on your credit score, the purchase price of the vehicle and whether the vehicle is new or used. Car dealerships are major issuers of auto loans. However, you may be able to score better terms from your bank, an online lender or a credit union.
Debt Consolidation Loan
A debt consolidation loan is a single loan you can use to tackle most or all your other debt. By using one larger loan to pay off outstanding balances, you may be able to reduce the amount you owe in interest as you streamline your payments into one.
Some lenders will only issue a debt consolidation loan if you allow them to pay down your debt on your behalf. They do this by sending approved funds directly to your creditors rather than to your bank account. Others may deposit half the amount of the loan into a bank account of your choice and use the remaining amount to pay down your balances for you.
Home Loan
A home loan lets you purchase a home without having to put forth the full asking price. Like an auto loan, a mortgage is secured by the home itself. If you fail to repay your loan, the bank can foreclose on your home. This risk remains until you repay your loan in full.
Home loan terms vary, from 15 to 30 years. To obtain a home loan, most lenders require you to have a score of at least 620. However, a score of 580 may qualify you for a government-backed loan.
Many home loans are issued by private organizations, such as banks, online lenders and credit unions. However, government entities issue home loans as well. Common government-backed mortgages include the FHA loan and VA home loan.
Small Business Loans
Small business loans are designed to help entrepreneurs grow their businesses. There are several types of small business loans, including the Small Business Administration loan, equipment loans, term loans and working capital loans. In most cases, your business must employ 300 people or less to qualify for a small business loan.
