Saving money is always a smart move before making a significant buy. That’s not always doable, though. It is particularly valid when it comes to costs like those associated with a college degree, a car or home, or even sudden emergencies like medical expenses.
If you are unable to save money up front, you can borrow money. You will need to know what kind of loan to look for, though, as there are many types of loans for different kinds of purchases.
Here are 16 different loan types that can assist you in getting what you need for your life:
1. Personal Loans
The payback period for personal loans, which make up the largest loan category, typically ranges from 24 to 84 months. The only things they can’t be used for are a college education or illicit activity. Personal loans are frequently used for the following purposes:
consolidation of debt
Transferring to a new city
PCs or other high-end electronics
There are typically two types of personal loans: secured and unsecured. Secured loans are backed by property that a lender can seize if you don’t pay back the full amount of the loan, such a savings account or a car.
Unsecured loans, on the other hand, don’t need any security and are just secured by your signature; this is why they are also known as signature loans. Because the lender assumes more risk, unsecured loans typically cost more and call for stronger credit.
It’s simple to apply for a personal loan online through a bank, credit union, or internet lender. The greatest personal loans are available to borrowers with good credit, and these loans have low interest rates and flexible repayment alternatives.
2. Auto Loans
With payback lengths ranging from three to seven years, auto loans are a sort of secured loan 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 even automobile dealerships frequently offer auto loans. Several auto dealers have a financing division that may assist you in locating the best loan from their network of lending partners. Others function as “buy-here-pay-here” lenders, providing you with a loan 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 recognised institutions. As a result, it often isn’t possible to use student loans to pay for particular forms of education, such coding bootcamps or unofficial classes.
Federal and private student loans are the two available varieties. By completing the Free Application for Federal Student Aid (FAFSA) and coordinating with your school’s financial aid office, you can apply for federal student loans. Generally speaking, federal student loans offer additional perks and safeguards but have slightly higher interest rates. Private student loans offer significantly fewer advantages and safeguards, but you can be eligible for better rates if your credit is good.
4. Mortgage Loans
There are several different types of mortgages that you can use to fund the purchase of a home. Banks and credit unions are typical mortgage lenders, but if a loan qualifies, they may sell it to a federally supported organisation like Fannie Mae or Freddie Mac.
Additionally, there are government-backed lending programmes accessible to specific demographic groups, such as:
Loans from the USDA for low-income rural homebuyers.
FHA loans are available to those with low to middle incomes.
Veterans and active-duty service members may apply for VA loans.
5. Home Equity Loans
You might be able to obtain a home equity loan, commonly referred to as a second mortgage, if your house has equity. The loan is secured by the equity you have in your home—the portion that belongs to you and not the bank. 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 a period of five to thirty years.
Simply deduct your mortgage debt from the assessed value of your home to determine its equity. Your equity, for instance, would be $100,000 if you owe $150,000 on your mortgage and your house is worth $250,000.
Based on your lender’s policies and the 85% loan limit guideline, you could perhaps borrow up to $85,000 with $100,000 in equity.
6. Credit-builder Loans
Small, short-term loans are used as credit builders and are obtained for this purpose. You don’t need strong credit to qualify, unlike ordinary loans, because they’re aimed for persons with no or little 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 with 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%.
Particularly for young individuals, credit-builder loans can be a very reasonable and secure way to begin developing credit. For instance, if you set up auto-pay for your payments, you won’t have to worry about remembering to make payments and can completely automate the process of building credit.