What Are the Four Types of Loans Available to Me?

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Big dreams can sometimes come with big money. Fortunately, there are several resources to help those who may not have the entirety of the required funds on hand.

Loans are not one-size-fits-all. Each person has their unique situation and there are several types of loans to accommodate each person. So what are the four types of loans? Let’s take a look at what is available.

Personal Loans

According to Nerd Wallet, a personal loan is money borrowed from a lender and then paid back in installments. Sounds simple, right? Not so much.

The fact that there are so many personal loan options out there can be looked at as both a blessing and a curse; it’s great to have options, but we don’t always have the time to review everything out there.

Taking time to look over all of your options ahead of time can help you feel more at ease as you get deeper into the process.

Items to Consider When Reviewing Loans

Before you take the plunge and apply for a loan, do a bit of research. There are a few details to collect so you can compare your loan options.

Type of Loan

Talk to multiple lenders and banks to get second and third opinions to fit your needs. If you plan on purchasing a home, the type of construction may give insight into the loan you need.

Home loans will differ from car loans, which will differ from business loans. Have a clear idea of what exactly it is you are purchasing and give as many details as possible to your lender so he can guide you in the right direction.

Interest Rates

Although these are constantly changing, get a few quotes from lenders and see who can give you the best rate!

Once you get a quote, be sure to ask how long the rate is guaranteed. If you are loan-shopping in June and don’t buy until August, rates may have gone up or down.

Duration of the Loan

There are certainly benefits for both shorter and longer loans. Which one is suited better for you? Longer loans may have smaller payments, but more interest will be applied in the end. Shorter loans are going to be bigger monthly payments, but less interest will be paid overall.

Required Down Payment

Some loans require will require a certain percentage of the total amount of the loan (think 3 – 5%), while some do not require any monies to be put down.

This will go hand-in-hand with the type of loan. Several government loans will offer a zero-down-payment incentive.

Monthly Payment

Depending on the interest agreement you chose, your payment may fluctuate over the life of the loan. Although all things can not necessarily be assured, it’s a good idea to get a general idea of how much you will pay throughout the years.

What Are the Four Types of Loans

The type of item you are paying for will help determine the kind of loan you will need. Once you select the type of loan, your personal financial situation will determine the details.


A fixed-rate option has an unchanging interest rate for the duration of the loan. This loan will prevent your payments from increasing a significant amount over time and can help prevent unexpected costs, helping you budget for the future more efficiently.

Although this is one of the more popular loan options, the offered interest rates may not necessarily be the lowest ones around. With this option, the goal is to think long-term and calculate your expenses over the life of the loan.

These loans are ideal for times when the market may be uncertain. Regardless of what happens, you will be paying the same amount.

In order to obtain a fixed-rate loan, the buyer will generally need to be in a fairly stable financial space. A high credit score and proof of steady income will be required.

With a fixed-rate loan, much of the early payments will be applied to the owed interest, and the later payments are applied to the principle.

This is because the total amount of interest over the length of the loan can be accurately totaled ahead of time.

Variable Rate

A variable rate loan, also known as an adjustable rate, is one that will change over the length of the loan. The benefit of an adjustable rate is there are usually lower introductory rates offered. In addition, this type of rate will allow for more payment flexibility for the borrower.

The downside to adjustable-rate loans is they can jump up year after year resulting in unforeseen costs. Although all loans will vary, rates are usually offered in one, three, or five-year terms.

A variable rate personal loan may be the best option for you if you plan on paying your loan off early. These types of loans generally have fewer payment restrictions, which can help prevent you from being penalized for closing your loan out ahead of time.

Research has shown that over time, borrowers with variable rates on their loans tend to pay less over time. However, this is all dependent on the borrower’s financial situation and amortization period.

Secured Loan

A secured loan is an agreement between the borrower and the lender than if the borrower does not pay back the money owed, the lender can take whatever the money was lent for. Make sense?

Think of it in terms of buying a house. If you are taking out a loan to purchase a vehicle, the vehicle is being used as collateral. If the borrower fails to pay the money, the lender will repossess the vehicle.

Because there is collateral involved in this type of loan, the interest rates are going to be a bit lower and there may be more agreeable loan terms.

Secured loans are the most common method of borrowing money. If you promise that the lender can take away your vehicle or home if you don’t pay your note, chances are that you are going to do whatever you can to make that monthly payment.

Unsecured Loan

An unsecured loan is when someone is given money with an agreement that it will be paid back. Since there is no collateral involved with this type of loan, the risk for the lender is higher, thus the interest rates and terms of the loan may not be the greatest.

This can be compared to a credit card. When you sign-up for a credit card, you are agreeing to terms that state you will pay back the amount of money you spend. If you do not pay this money back, repercussions like fees, a lower credit score, and future card denial are likely to happen.

Because unsecured loans require the lender to take a big gamble, not everyone will qualify for this type of loan. A lender of an unsecured loan will want to see proof that you own collateral that can be repossessed in the event you fail to pay.

Gathering Information for Your Loan

Now that you have the background knowledge, it’s time to gather all of your materials to bring to your lender. Although each lender or bank may require a few extra items, this is a good list to start with.

Loan Application

Which lender are you using? Check their website or ask the lender if there is an application you can fill out ahead of time. It will ask for your basic information, the reason for the loan, and the amount you are requesting.

Proof of Identity

Rule of thumb: always bring two. Whether it’s your driver’s license, passport, social security card, or birth certificate, always have more than one on hand for these types of situations.

Employment Information

Your lender will need to verify your employment and yearly income to ensure that you can pay back the loan. Your income will play a large role in the size of the loan you qualify for.

Proof of Address

Lenders may not feel comfortable approving someone for a loan who does not have a steady address. In their eyes, this can be a red flag. If you don’t have a permanent address, it would be wise to provide some sort of explanation for this.

Start Small and Go for It

Unpacking all of the available loan options can certainly be overwhelming. If you are stuck on where to start, helpful financial sites can be great starting points.

So what are the four types of loans again? Let’s review: fixed rate, variable rate, secured and unsecured. Learning all the details of these loans can be quite a bit of work up-front, but it will definitely pay off in the end.

Remember the five key items to check, get opinions on the best type of loan for you and go for it! Your wallet will thank you! Feel free to browse the rest of our finance section for our latest.

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