Type Loan Finance
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​Mortgages
Mortgages are loans distributed by banks to allow consumers to buy homes they can’t pay for upfront. A mortgage is tied to your home, meaning you risk foreclosure if you fall behind on payments. Mortgages have among the lowest interest rates of all loans.
Student Loans
Student loans are offered to college students and their families to help cover the cost of higher education. There are two main types: federal student loans and private student loans. Federally funded loans are better, as they typically come with lower interest rates and more borrower-friendly repayment terms.
AUTO LOAN
An auto loan is a type of secured loan, which means that the car you buy is collateral for the loan. If you fail to make payments on time, a lender might repossess your car and sell it to pay off the loan. Make sure you can afford your monthly payment before buying a car.
Personal line of credit
A personal line of credit is revolving credit, more similar to a credit card than a personal loan. Rather than getting a lump sum of cash, you get access to a credit line from which you can borrow on an as-needed basis. You pay interest only on what you borrow.
Debt consolidation loans
This type of personal loan rolls multiple debts into a single new loan. The loan should carry a lower APR than the rates on your existing debts to save on interest. Consolidating also simplifies your debt payments by combining all debts into one fixed, monthly payment.
Secured personal loans
These loans are backed by collateral, which can be seized by the lender if you default on the loan. Examples of other secured loans include mortgages (secured by your house) and car loans (secured by your car title).
Some banks, credit unions and online lenders offer secured personal loans, where you can borrow against your car, personal savings or another asset. Rates are typically lower than unsecured loans, as these loans are considered less risky for lenders.
Unsecured personal loans
This common type of personal loan isn’t backed by collateral, such as your home or car, making them riskier for lenders, which may charge slightly higher annual percentage rates.
Approval and the rate you receive on an unsecured personal loan are mainly based on your credit score. Rates typically range from 5% to 36%, and repayment terms range from one to seven years.
Types of Credit: Open-End & Closed-End Credit Options
The two basic categories of consumer credit are open-end and closed-end credit. Open-end credit, better known as revolving credit, can be used repeatedly for purchases that will be paid back monthly, though paying the full amount due every month is not required. The most common form of revolving credit are credit cards, but home equity loans and home equity lines of credit (HELOC) also fall in this category.
Credit cards are used for daily expenses, such as food, clothing, transportation and small home repairs. Interest charges are applied when the monthly balance is not paid in full. The interest rates on credit cards average 15 percent, but can be as low as zero percent (temporary, introductory offers) and as high as 30 percent or more, depending on the consumer’s payment history and credit score. Loans for bad credit may be hard to find, but lower interest rates are available within nonprofit debt management programs, even for credit scores below 500.
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