Different loan types function differently. Therefore, a borrower must have a basic understanding of common loan types. Also, the borrower should be well aware of the following loan terms given below. If you want to know much more than what types of loans are, read this post until the end.
What is a secured loan? It is an amount that is required to ensure the lender’s interest in case the borrower cannot pay the loan amount back.
Unlike secured loans, unsecured loans come with higher interest rates. Such loans may prove to be a risk for the lender because there is no collateral.
Furthermore, there are installment loans. Such loans are usually paid after a certain period and fixed payments.
Next, we have revolving credit, the loans that a borrower can borrow within a credit limit. The limit is always initially defined.
Fixed-rate loans are loans in which there is a fixed interest rate. The interest rate remains constant during the whole loan process. On the other hand, there are Variable rate loans. The interest rate is variable (can be changed) in the case of variable loans.
All these terms related to loans mentioned above will help you understand the main types of loans described below. Following are the types and their features.
- Personal loans
Personal loans are one of the most common types of loans. Such loans can be borrowed for personal reasons or expenses that a person can’t afford. Also, these loans can be taken in a financial emergency. It could be for home repairing or car maintenance tasks. Personal loans are generally unsecured (risky for the lender). They can have both fixed or variable interest rates depending upon the situation.
However, you can visit personal loans NZ if you want to know more.
- Student Loans
As the name reflects, student loans are supposed to be borrowed by college and university students to manage their expenses or handle economic emergencies. These loans are provided to federal as well as private sector students.
Likewise, for other loan types, the loan terms, policies, interest rates, and lender’s fee is almost identical for student loans. But for federal government students, there is a privilege that they can pay back loans as income-based payments. On the other hand, in the case of private-sector students, this privilege is not available.
- Auto Loans
Then, there are auto loans, one of the typical loan types. Such loans are borrowed when the borrower needs to buy an automobile vehicle like a car or truck. These loans have a payback period of almost three to five years. Although, the interest rate is kept simple in the case of auto loans.
Regardless of purchasing a house, the car is also the most significant purchase that a person can make. So, with auto loans, you can afford to buy a car or maybe another vehicle if you are running out of budget.
- Mortgage Loans
A mortgage is an amount of Loan used to manage the purchase of land, a house, a plot, or other real estate projects. So, the mortgage loan is a deal between the borrower and lender to help build the borrower’s house—the period to pay back the mortgage loans ranges from 10 to 30 years.
- Home Equity Loans
Home equity loans are one of the loan types being common today. HELOC (Home Equity Line of Credit) is an amount that allows the borrower to borrow up to the percentage of your home equity. Home equity loans are installment loans. You have to pay it back in monthly installments up to a specific time limit. Also, home equity loans may have fixed interest rates.