In a perfect world, consumers would have enough money to pay cash for everything.
But that’s not often the case, especially for large purchases, such as homes and cars.
That’s where consumer loans come into play. Loans give you the money you need for various purposes.
The different types of loans you use depend on your needs. Some loans, such as mortgages and car loans, help you purchase something specific over time. Other loans give you cash and have more flexible uses.
Check out these six loan types.
Mortgages allow consumers to finance homes. Home purchases are often financed, with 86% of buyers financing according to one report.
Mortgages require a down payment. The most common option is a fixed installment loan where you’ll pay the same amount for the life of the loan.
2. Home Equity Loan
If you own your home, you might qualify for a home equity loan. You borrow against the equity in your home. The amount you can borrow depends on how much equity you have available.
Your house is used as collateral for the loan. That means you could potentially lose your home if you can’t make the loan payments.
3. Secured Personal Loan
The money you get from a personal loan can usually be used for anything. With a secured personal loan, you put something up for collateral. If you default on the loan, the lender has the collateral to collect on.
You’ll often get better interest rates on a secured personal loan since the lender has the collateral. Just make sure you can pay back the loan, or you risk losing the property you use as collateral.
4. Unsecured Personal Loan
An unsecured personal loan also gives you money that you can use at your discretion. The difference with this type is you don’t put up any collateral.
Since you’re not putting up any collateral, lenders are often more rigorous in their requirements. Your credit score will be a major factor in the terms you get on the unsecured loan.
If you have bad credit, it might be difficult to get an unsecured loan. If you qualify, you’ll likely pay higher interest.
5. Cash Loan
Cash loans, sometimes called payday loans, are short-term loans.
When you get a cash loan, you usually pay it back over a shorter time period than a personal loan. They’re usually for smaller amounts than other types of loans.
Cash loans are best for emergency situations when you need cash fast. They usually have much looser requirements than traditional loans. You can get the money quickly because of the short application process.
Check the interest rates and fees before doing this type of loan.
6. Title Loan
Car owners may be able to get a title loan. Title loans are typically short-term loans with high-interest rates, so use consider this option carefully. If you don’t repay it within the established term, your car will get repossessed since it serves as the collateral.
Understand Types of Loans
When you need money, it’s important to understand the types of loans that are available. Choose the option that saves you the most in financing fees and that fits your situation.
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