8 Different Types of Loans
How Do Loans Work?
1. Personal Loans
2. Auto Loans
3. Student Loans
4. Mortgage Loans
5. Home Equity Loans
6. Credit-Builder Loans
7. Debt Consolidation Loans
8. Payday Loans
While auto and mortgage loans are designed for a specific purpose, personal loans can generally be used for anything you choose.
When you buy a vehicle, an auto loan lets you borrow the price of the car, minus any down payment.
Student loans can help pay for college and graduate school. They are available from both the federal government and from private lenders.
A mortgage loan covers the purchase price of a home minus any down payment. The property acts as collateral, which can be foreclosed by the lender if mortgage payments are missed.
5-Home Equity Loans
A home equity loan or home equity line of credit (HELOC) lets you borrow up to a percentage of the equity in your home to use for any purpose.
A credit-builder loan is designed to help those with poor credit or no credit file improve their credit, and may not require a credit check.
7-Debt Consolidation Loans
A debt consolidation loan is a personal loan designed to pay off high-interest debt, such as credit cards. These loans can save you money if the interest rate is lower than that of your existing debt
One type of loan to avoid is the payday loan. These short-term loans typically charge fees equivalent to annual percentage rates (APRs) of 400% or more and must be repaid in full by your next payday.
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