If you have ever applied for a loan, then you probably are aware that there are different kinds of loans which are available at banks, credit unions, other financial institutions, or with private lenders. The individual needs of the applicant are taken into consideration by these different sources and their individual policies to see which loan will suit the needs of the applicant.
It may be helpful to understand that there are four general categories of loans that are used on a normal basis and that each loan category covers a particular area or expense. Each person needs a different loan amount and may be subject to other costs based on their credit rating, availability of collateral, etc.
The four main types of loans are personal loans, mortgage loans, auto loans, and student loans.
Personal loans are the most basic type or category of a loan because an individual will apply for a loan at a bank or other lender. The loan may be used for debt consolidation or to make a small purchase, however the line between personal loans and small business loans is sometimes blurry. The borrower might use a personal loan as start-up capital rather than applying for a commercial business loan.
Auto loans are needed by most people who wish to purchase a car or other vehicle. A functioning vehicle is necessary for most people because it offers a means of transportation to work and other places that are common to everyday living. The average consumer needs an auto loan in order to purchase a car today. There are other options available to those who want to purchase a car except the ones provided by the dealership to independent lenders.
Mortgage loans are used to purchase a new home or it can be used to serve as collateral to get funds for some other purpose. A mortgage loan is a long-term expense and is usually spread out over a 20-30 year period. This type of loan is one which carries a higher risk than a personal loan because the house is pledged as collateral in the event that you can’t make the loan payments. The house could be seized, foreclosed, and sold by the lender for compensation for his losses.
Student loans or educational loans are those which are obtained by a student who is leaving high school or by an adult who is seeking further professional training in order to increase their marketable skills. Educational loans are financed by banks, credit unions, and by government-sponsored financial programs. These loan programs offer more people the opportunity to improve their financial status by granting financial assistance for education.
Most other existing loans are in subcategories of the four main types. Research must be carefully done to make the proper decision on a loan of any type. Borrowing money is a very serious matter and it pays you to compare the terms of several different lenders to be able to choose which one of the loans that best fits your needs.
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