Borrowing Money: 7 Different Types of Loans You Should Know About
Did you know that student loan borrowers owed more than $1.75 trillion in student loan debt as of early 2022 in the United States? Borrowing money is a great option if you’re looking to make a big purchase like a car, a new home, or a college education. Knowing your different financing options is an important part of taking command of your financial future.
Getting the right types of loans will make it easier for you to save money while getting your dream house or that car that you’ve always wanted. The good news is that you’ve found the right place to learn all about the different ways that you can get money from lenders.
Keep reading to learn about seven different types of loans that you can take out today!
1. Personal Loans
Loans that you take out for your home or for your car are designated loans that require you to put your money toward those assets. Personal loans work in a similar manner but you get to decide where and how you spend the money that you’re borrowing. Some people opt to use their personal loans to take care of financial emergencies while others use them for weddings or home improvements.
It’s important to keep in mind that personal loans are unsecured loans. You don’t need to put any collateral down when you decide to get money through a personal loan, and you can pick between a fixed-rate loan or a variable-rate loan.
2. Auto Loans
Auto loans are designed to help consumers purchase automobiles and motorcycles without paying in full. Your auto loan is the amount of money that you owe based on the value of the vehicle and the down payment that you make to purchase it. The collateral that the lender uses to ensure that you pay back the money that you’ve borrowed is the vehicle itself.
If you take out an auto loan and you fail to make your payments then the bank or the lender can repossess your vehicle. The general length of these types of loans allows you to get money and pay it back over the course of up to 72 months.
3. Student Loans
One of the main reasons that Americans are borrowing money is to take care of paying for an education. It’s no secret that attending college is not cheap even if you earn a number of scholarships. Private lenders offer student loan options as does the federal government.
The best option for student loans is the federal government since you can defer the money that you owe. There are also options for paying back what you’ve borrowed based on your income that is coming in. You can also get your student loan without a credit check, which is a big deal if you want to avoid damaging your credit score and allowing you to save money.
Private lenders for student loans will require a credit check before they’re willing to let you borrow money for your education. They’re a good secondary option, but you won’t have access to loan forgiveness or payment plans based on the amount of money that you’re making.
4. Mortgage Loans
Mortgage loans cover the price of the home that you’re looking to purchase minus the money that you put down on the home. The collateral with this loan option is the home itself, and if you fail to make your monthly payments then the bank has the right to repossess your home.
Most homeowners choose mortgages that run between 15 years and 30 years. There are different mortgage options out there, some of which are sponsored by the government. You’ll need to look at these loans to see if you qualify, but they could allow you to save money in the long run.
5. Home Equity Loans
Home equity loans are loans that get taken out of the money that you’ve already paid into your home. You can borrow up to a certain percentage of your home’s appraised value and use that money for anything that you’d like. These loans usually come in installments, and you’ll need to pay back this money that you’re borrowing over a number of years ranging from five to 30.
Expect to encounter variable interest rates if you choose to take out a home equity loan. You can also withdraw from your home’s credit line in your home’s equity.
6. Payday Loans
Another financing option that you can use to get money in a hurry is the payday loan. Payday loans are a great option if you’re in need of a short-term loan for a smaller amount of money. Most of these types of loans will allow you to borrow up to $1,000 with the stipulation that you need to pay that money back by your next payday.
You can get payday loans without the credit hit that other types of loans cause. They’re a notable alternative to using a credit card or a personal loan.
7. Debt Consolidation Loans
Debt consolidation loans are a great way to save money if you have multiple debts that you’re trying to pay off. Debt consolidation allows you to combine all of those debts into one with a lower interest rate. You get to pay one lender rather than many, which makes your life easier.
It’s also a great way to impact your credit score in a positive way. It will improve your credit utilization, which will not only look good on your credit score but it will look good in the future to potential lenders.
Consider All of Your Options for Borrowing Money
Borrowing money is a bit intimidating, but it’s a key to building wealth and gaining assets like that dream home or that car that you’ve always wanted. Personal loans are great if you’re looking to borrow money that you can use however you’d like. Student loans are also a common option, and it’s best to go with a federal lending program if you’re looking for sound financial advice.
For more enlightening and helpful articles like this one, make sure you check out our blog today!