Saving money is always a smart move before making a significant buy. That’s only sometimes possible, though. That is particularly valid regarding costs associated with a college degree, a car or home, or even sudden emergencies like medical expenses. If you cannot save money upfront, you can borrow money. You will need to know what type of loan to look for, though, as there are many types of loans for different purchases.
We will go through 15 different types of loans in this guide to assist you with your subsequent big purchases. Please keep reading.
1. Personal Loans
Personal loans are the broadest types 0f loans, with payback periods typically ranging from 24 to 84 months. They can be used for almost anything besides paying for a college education or engaging in unlawful activity. People frequently use personal loans for debt consolidation, vacations, weddings, crises, and medical care. Secured and unsecured personal loans are the two main types available.
- Secured loans are secured by property that a lender can seize if you don’t repay the full loan amount, such as a savings account or car.
- On the other hand, unsecured loans don’t need any security and are only secured by your signature. Because the lender assumes more risk, unsecured loans are typically more expensive and call for more vital credit.
2. Auto Loans
With payback lengths ranging from three to seven years, auto loans are loans that you can use to purchase a vehicle. The vehicle itself serves as the loan’s collateral in this instance. If you don’t make payments, the lender will seize the vehicle. Credit unions, banks, online lenders, and automobile dealerships frequently offer auto loans. Some auto dealers have a financing division that may assist you in locating the best loan from their network of lending partners. Others function as though you receive the financing directly from the dealership. However, these are typically far more expensive.
3. Student Loans
Student loans are intended to cover living costs, tuition, and other school-related costs at recognized institutions. As a result, it is often impossible to use student loans to pay for particular forms of education, such as coding bootcamps or unofficial classes. Federal and private student loans are the two types of student loans. You can get federal student loans by filling out the Free Application for Federal Student Aid (FAFSA) and coordinating with your school’s financial aid office.
4. Mortgage Loans
Mortgage loans are types of loans that help fund the purchase of a home. Numerous kinds of mortgages can be used to fund the purchase of a home, although banks and credit unions are frequently utilized as mortgage lenders. If a loan meets specific criteria, they may sell it to federally supported organizations like Fannie Mae or Freddie Mac.
5. Home Equity Loans
You can obtain a home equity loan, commonly referred to as a second mortgage, if your house has equity. Your home’s equity, or the area you own outright, serves as the loan’s security, not the bank’s. Typically, you are permitted to borrow up to 85% of the equity in your house, which is disbursed as a single payment and repaid over five to thirty years. Deduct your mortgage debt from your home’s assessed value to determine your equity.
6. Payday Loans
Payday loans are short-term loan that often last until the next payday. You don’t need excellent credit to be eligible for these loans because they are not credit-based. However, these loans frequently have a predatory quality for a few reasons.
First, they have exorbitant finance fees that, in certain situations, equal 400% APR (a finance fee is not the same as an APR). Second, if you can’t pay off your loan by the time you get your next salary, they let you roll it over. When additional costs are added, it appears helpful at first, but soon you find that many people are trapped in debt commitments that may even be more than the amount they originally borrowed.
7. Small Business Loans
Small business loans come in various forms, including equipment, working capital, term, and Small Business Administration (SBA) loans. These loans support small firms’ operational funding, typical organizations with up to 300 employees. Local companies like landscapers, hair salons, restaurants, or family-run grocery stores are welcome to apply, as are lone entrepreneurs like freelancers who hold down a regular day job.
8. Title Loans
Another form of secured loan is a title loan, in which you use the title to a car or truck you own as security. The lender will generally determine your loan limit as being between 25% and 50% of the value of your vehicle. Title loans are an expensive financing option because the monthly fee charged by lenders who offer them is 25% of the loan amount or an annual percentage rate (APR) of a minimum of 300%.
9. Family Loans
Family and friends may lend you money informally through a family loan. For instance, you may decide to resort to relatives if you cannot obtain a conventional loan from a bank or other lender. Family loans are advantageous since they can be received without requiring credit. If a family member feels comfortable lending your money and has the resources, they may do so.
10. Land Loans
People purchase land for many different purposes. They could utilize it for a home, gather resources, or rent it to other people and companies. However, because land can be expensive, land loans are among the types of loans that can be helpful.
11. Pawnshop Loans
Another loan option that we typically advise against is pawnshop loans because of their high costs, low loan amounts, and short repayment terms. You must bring a valuable thing to the pawnbroker to obtain a loan from a pawnshop, such as a power tool, jewelry, or a musical instrument. The pawnbroker will evaluate the item, and if you accept their loan offer, it will typically range from 25% to 60% of the item’s resale value. Usually, within 30 days, you’ll get a pawn ticket that you’ll need when you come back to pay back the loan. If you don’t return or lose your ticket, the pawnbroker gets to hold your item to sell it for a profit.
12. Debt Consolidation Loans
With debt consolidation, you can simplify your payments by requesting a new loan to pay off all your debts, leaving you with just one monthly loan payment. Debt consolidation loans can help you in two ways if you have high-interest debts, such as a high-interest personal loan or credit card debt. You might first be eligible for a monthly payment reduction. Second, you might qualify for cheaper rates, resulting in long-term cost savings.
13. Boat Loans
Boat loans, which can be obtained from banks, credit unions, and internet lenders, are primarily intended to be used to finance the purchase of a boat. A boat can be used as collateral for secured loans, either unsecured or secured. Depreciation must be considered, just like with any loan involving a car, particularly if you’re purchasing a new yacht and anticipate eventually selling it.
14. Recreational Vehicle (RV) Loans
RV loans come in two varieties: unsecured and secured. While expensive, luxury RVs are secured with the RV as collateral and function more like auto loans, smaller RV loans are often unsecured and operate similarly to personal loans. You can get RV loans for about $25,000 that you pay back over a few years, but you can also find loans up to $300,000 that you repay over 20 years, depending on the lender. You should be aware of depreciation, especially if you want to sell your new RV at some point in the future.
15. Credit-Builder Loans
Small, short-term loans are used as credit builders and are obtained to build credit. Compared to ordinary loans, you don’t need strong credit to qualify because they’re aimed at persons with little or no credit. Credit unions, community banks, Community Development Financial Institutions (CDFIs), lending circles, and online lenders are frequently where you can obtain credit-builder loans.
Unlike a traditional loan, you don’t get the money up front; instead, you make predetermined monthly installments and get the money back at the end of the loan term. Typical credit-builder loan amounts vary from $300 to $3,000, with annual percentage rates (APRs) ranging from 6% to 16%.