When we talk about loans, we refer to the action of lending or giving another person a specific amount of money or a specific good. All this for a term previously stipulated by the loan contract and by which the lender and borrower figures are established. The types of loans are varied, depending on your needs. Here are five types of loans to help you determine which one fits your needs.
Personal Loan
A personal loan can be obtained at almost any banking institution and businesses that specialize in personal loans. A personal loan is generally taken out by someone with a need they don’t have the funds to cover. Personal loans are also sometimes used for minor repairs and to make smaller purchases. This type of loan is an unsecured loan, which means if there is a default on the loan, it will go to debt-collectors as there is nothing to seize if you default on the loan. Because there is no collateral or ability to repossess, such as with a car or home loan, personal loans are generally less than $5000 and paid over two to five years. While personal loans are not large, they generally require good to excellent credit since there is no recovery if you default.
Mortgage Loan
A mortgage loan is when the borrower receives money from a lender to purchase a home. These loans can be obtained through your banking institution or through lenders that specialize in mortgage loans. These loans carry interest and have varied terms. A mortgage loan is dependent on the borrower to pay the loan back within the agreed-upon terms. If the terms are broken, and no new agreement is made to allow for some time to pay when the borrower has a financial setback, the home will be under the ownership of the bank or mortgage company, who can then sell the house recover the loan and interest.
Automobile Loan
Much like the mortgage loan, an automobile loan is obtained through a banking institution or a lender specializing in automobile loans. In some cases, the dealership where the vehicle purchased will have an internal lender and finance directly. These loans carry interest, which is determined by the borrower’s credit. While some poor credit can prevent a car purchase at some dealerships, many will extend a car loan to those with poor credit and charge the highest possible interest rate within the law. This loan uses the automobile as the collateral, and if you default on the loan, the vehicle is repossessed as the lender will own it. If your car is repossessed, the lender can then resell it to recover the loan. Defaulting will have an adverse on our credit score due to credit reporting.
Credit Card
While most people don’t view a credit card as a loan, it is exactly that. As the name implies, it is a line of credit extended to the cardholder through a company that is the lender of the credit your card holds. Credit cards are what is considered a revolving loan or revolving credit. This means, as long as you are paying your bill and as long as you are staying under your limit, you can use the line of credit even if you are making payments. Unless you default on the payments and have it canceled, there is no term on this loan or line of credit. The only terms are to make your payments promptly.
Crowd-lending Loan
A crowd-lending loan is a loan done between individuals or person-to-person (P2P). This type of loan does not go through a bank or a traditional lending company. It is funding from private investors. These loans can vary in types of their own. In some cases, they will make their money back in interest if they extend a loan that will not pay dividends. However, they may be extending a loan in which there will be profits or dividends shared. These types of loans can be fairly easy to get despite credit history because the individuals make decisions to lend money based on varying criteria of their own making and not a strict set of requirements.
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