Loans are borrowed sums of money that individuals use to purchase goods or services they cannot afford. Moreover, there are many different types of loans that are used for different reasons. The following paragraphs will cover four different types of loans that are known as personal installment loans, student loans, mortgage loans, and personal loans.
Personal Installment Loans
Personal installment loans are used for bigger purchases like remodeling a kitchen, buying a new air home air condition, or for purchasing a car. Furthermore, personal installment loans are usually around $1,000 and up, so there is a set criteria for applicants to understand before applying for one. Personal installment loans are loans that are paid off slowly with monthly payment plus interest over a course of a set amount of years. The amount and length of an installment loan depends on the borrowers credit score, how much the individual is asking for, how much they make yearly, how long they have been employed, and finally what is their income to debt ratio. All of these factors will determine how much an individual can borrow or if they can be allowed to borrow at all. For this reason it is very important for an individual to make sure their credit is in good standing before trying to apply for this type of loan due to the risk of the company loaning the money.
Student loans are loans that are used to further an individual’s education and are separated into a few different categories. The student loan categories that are being covered are referred to as direct subsidized loans, direct unsubsidized loans, direct plus loans, and private student loans. Direct subsidized loans are loans for undergraduate students where the amount of the loan is determined by the school and the government pays for the interest. Direct unsubsidized loans are also loans where the amount is determined by the school and this time the borrower will pay the interest. Direct plus loans are for parent’s of students who borrow directly from the government and the amount is determined by how much the tuition costs while subtracting any other financial aid the student may already have. Finally, private student loans are student loans that are given from private lenders rather than the government.
Mortgage loans are loans that are used to purchase a house, property or real estate. There are three different types of mortgage loans that will be covered and are referred to as a conventional mortgage loan, a VA mortgage loan, and an adjustable rate mortgage loan. A conventional mortgage loan usually has terms that are either a 15-year or 30-year loans with rates that are usually fixed meaning the monthly payment will not fluctuate. These types of loans usually need a 10 percent down payment and maybe more if the individual applying for the loan has credit that is not in good standing. The other type of mortgage loan is known as a VA mortgage loan that is specifically offered to veterans. With this loan, veterans do not have to put a down payment on the house, so it is very beneficial, but again is only offered to veterans. The last loan that will be covered is an adjustable rate mortgage loan which is a very unique loan, that can cause problems towards the end of the loan term. These types of loans usually start off with cheaper rates in the beginning then after a period of 2 to 5 years, the rates usually become more expensive making monthly payment more which can be problematic for young buyers, or individuals who do not prepare for the rate increase.
Personal loans are loans that are meant to be paid off quickly due to that fact that less is needed to get approved for the loan. The difference here from most loans is they are a lot smaller and not connected to a borrower’s possessions. The amount and approval of these loans are determined by the borrower’s credit score. Consequently, these loans usually have very high interest rates that can add up very quickly. The best way to look at how these loans are used should be for very short-term needs and should be paid off as quick as possible. There are risks with these types of loans. If they are not paid off in the specified amount of time and since property cannot be taken, these lenders can sue the borrower if they choose not to pay back the loan.
As you can see, there are many different types of loans. Do your homework and find the one that works best for you and your needs.