Understanding different types of loans

When it comes to borrowed money, there are several types of loans available to apply for. These different loans cater to your specific need. For example, you wouldn’t first apply for a personal loan if you need to pay your college tuition, which is what student loans are for. So where do you start when figuring out which loan type might be best for your situation? Read on to learn more about the different types of loans and how they work.

Mortgages

One of the most important purchases you will make throughout your life is your “forever home”. Most people cannot pay for their entire home purchase up front, which is why they look to a loan to help pay for their home. These loans are called mortgages, which are given out by a bank. A mortgage will be linked to your home, and falling behind on payments means the possibility of foreclosure. However, banks work with your credit to determine the perfect loan amount that works with your finances so you don’t fall behind!

Auto loans

Another big purchase you might make is for a new vehicle. This is why auto loans were created, to provide you with the money you need to make the initial purchase, and make payments with interest each month. Just like a home, you will want to keep up with payments, or risk repossession of your vehicle.

Student loans

Student loans are made available for those attending college at the undergraduate, graduate, or doctoral level. Federal student loans can be approved through FAFSA, a program that determines your need and eligibility for funding. Private loan companies specialize in providing student loans to the students themselves, as well as parents who can be added as a cosigner.

Personal loans

What if you need money for something random, such as an emergency car repair, hospital bill, etc.? This what personal loans are for, although getting them is dependent upon your credit score. Poor credit usually will not allow you the opportunity for a personal loan. These loans can be used for anything you need, and are paid back on a schedule with added interest.

Payday loans

Payday loans are similar to personal loans, in that they can be used for any personal expense. These short-term loans come with high interest rates and are available based on your paycheck. Although enticing, these loans are not always your best bet and you should be cautious when deciding on taking out a payday loan. Most of the time you will be required to payback way more than the requested amount because of the high interest.

Consolidated loans

Consolidated loans are a way for you to consolidate, or group together all of your finances. If you have several credit cards that carry a balance, you might want to consolidate all of those balances to come up with one monthly sum, while also paying one interest rate. Consolidated loans can be in the form of a personal loan or through a second mortgage.

Business loans for small business

Thinking about starting your own business, but need some initial startup funds? Small business loans are available for this reason, through the United States Small Business Administration. The SBA provides different loan options based on your needs.