Different types of loans available: which one is right for you?
Are you in need of money? A loan can be the immediate solution you need. Learn about the main types of loan you can take out.
by Sabrina Paes
Everything you should know about loans in one place
On some special occasions, we need help to achieve our goals. This is what happens when we need to buy a car, a house, or even organize a wedding. So different types of loans can help.
Thinking about your needs, lending institutions have a number of types of loans. In this sense, you can pay for anything you need. This includes external debts and even household bills.
However, before making the loan, you need to plan. Planning should include meeting your needs and long-term payment of installments. So, you can choose the option that best fits your life.
How to choose a loan that’s right for you?
Saving money to achieve your goals is always a good idea. However, due to external economic conditions, this is not always possible. That way, you may need help to achieve what you dream of most.
This dream can have a high value, like a house or even a wedding party. Or even slightly smaller values like a car, for example.
Also, you may need money to pay late bills. No matter the purpose, the loan can help you.
However, choosing between different types of loans can be quite a challenge. Check out some tips to help you on this mission.
Think about your goal
First, you need to keep in mind what is the objective you want to achieve with the loan. That way, you can choose the best option for your specific case.
Some goals might be to buy a house, pay rent, buy a car, or get married. Other goals may be to make a purchase of a luxury item or even pay off overdue debts.
Plan the installment
Another important tip is to think about how long you want to pay off this loan. Thus, you can get an idea of the interest rate and can plan and separate the money for this activity.
Analyze if the loan is really necessary for your objective
The Loan is a long-term commitment and needs to be undertaken with caution.
Therefore, analyze your possibilities and the urgency and need to take out a loan. If you are sure what you need, then go ahead and choose the ideal one.
7 different types of loans: compare the options
If you’ve analyzed and decided that you need a loan, it’s time to get to know the main options available. These options are determined according to the objectives to be achieved. Check out!
1) Personal loans
The first category, and perhaps the most used, is Personal Loans. Through it, you get a loan to be paid between 24 and 84 months. It can be used for virtually all kinds of material needs at a high cost.
There are 2 modalities: secured and unsecured loans. The secured loan usually has lower rates because the person performing it offers a type of guarantee.
In this sense, the guarantee can be a savings amount or a car.
In turn, the unsecured loan has higher rates due to the greater risk of not having any kind of collateral.
That is, what will determine whether you will have access to secured or unsecured will be your credit history and income.
2) Student loans
This type of loan, as the name implies, is aimed at students. Therefore, it can be used to pay fees and tuition fees for studying at accredited institutions.
There are two types of loans in this category: federal and private. Federal loans charge higher fees but have greater benefits. Private loans offer lower benefits and protection but have lower associated fees.
3) Loans for building credit
There are also loans to help you build credit. Credit history is required to apply for credit cards and enjoy their benefits. The longer and better the history, the greater the chances of getting high credit lines.
Banks, credit unions, and Community Development Financial Institutions (CDFIs) can carry out this loan.
The fee varies between 6 and 16%, and the amounts to be borrowed are between $300 and $3,000. It is a great option for those who are starting in financial life.
4) Automatic loans
Automatic Loans are used when you intend to finance a new vehicle. They are usually carried out by credit unions, banks, online lenders, and even car dealerships.
Dealers are the ones that provide the lowest rates, given the desire to sell the cars. The payment of installments can be carried out in the period between 3 and 7 years.
The vehicle is given as collateral, so if you don’t pay, the lender can withdraw the vehicle.
5) Loan for debt consolidation
If what you need is to pay off some overdue debts, this should be the choice. The Loan for debt consolidation is aimed at people who need to pay off high-interest debt, such as credit cards.
This loan makes life much easier for those in debt because it concentrates the payment on just one creditor. Thus, you can reestablish a good credit history and avoid outstanding debts.
6) Mortgage loan
If you want to finance a new home, this loan is ideal. In this sense, banks and credit unions are the most common institutions to provide this loan.
However, the government also has some types of funding for this purpose:
- FHA loans for people with low to moderate income levels.
- USDA loans for low-income rural buyers.
- VA loans for active duty military and veterans.
7) Home Equity Loans
This type of loan is intended for those who have some kind of equity. The amount that can be requested must be related to a maximum of 85% of the value of the estate.
The patrimony itself is given as collateral. This loan, also known as a second mortgage, can be carried out by cooperatives and banks.
They analyze the credit history and also the amounts requested to then removed.
And if you want to learn how to get a loan with bad credit, check out our post below to find out!
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