Most people will want or need to take out some type of loan in their lives, but the types of loans needed are unique to each individual. Some types of loans are more common than others. For example, many people need to take out loans to purchase homes or cars, while only small business owners are eligible for or need small business loans. Here are five common types of loans you may need.
- Auto Loans
A person will take out an auto loan to purchase a vehicle. These loans can be used to purchase new or used vehicles and are typically paid off over a period of years. You may apply for an auto loan with any lender, such as a bank or a credit union. You can also apply for a loan with the car dealership. Pay attention to your options and the interest rates offered by each one so you can get the best rate and repayment plan. Auto loans typically require down payments and are considered secured loans, with the vehicle as collateral. You can reduce your insurance rate by paying a larger down payment because the amount that needs to be repaid is the basis for the rate.
- Student Loans
If you choose to attend a college or university, you’re likely to need at least one student loan to pay for tuition, room and board and other expenses. There are two main types of student loan lenders: the federal government and private lenders. Federal loan amounts are based on financial need and whether you are an undergraduate student, a graduate student or a parent of an undergraduate or graduate student. There are four types of federal loans, including direct consolidation loans, direct PLUS loans, direct unsubsidized loans and direct subsidized loans. Most people apply for private loans at banks or credit unions.
- Personal Loans
Personal loans tend to have the broadest applications. While some, such as vacation loans for travel-related costs, must be used for specific expenses, most personal loans are quite flexible and can be used for any number of costs at the recipient’s discretion. Most personal loans are relatively small and have repayment periods of up to two years. If you borrow one from a bank, it’s likely to be unsecured, but most lenders do require applicants to have good credit scores and proof of adequate income or assets before approving applications.
- Credit Cards
Credit cards are likely the most common type of loan. Many people have one or more credit cards and they can be quite useful. A credit card is similar to a personal loan, in that it can be used for nearly anything the borrower chooses. However, the credit line can be used indefinitely with some exceptions, such as the borrower closing the account. When you pay off your credit card bill, you have access to the full credit amount again. If you have a credit card, you aren’t required to pay off the entire bill every month, but you will be charged interest on any unpaid amount.
- Small Business Loans
Small business loans are only available to those who run and own small businesses or start-ups. You can apply for one with a bank or with the Small Business Association (SBA). Applying for a small business loan tends to be more complicated than applying for other types of loans. The applicant needs to include his or her business plan, financial statements and income tax returns, among other information. He or she must also put up personal assets as collateral in case of default.
When you take out loans, make sure you research them before making any decisions. You need to be aware of the type of loan you need, how much money you need to borrow, the repayment plan and the interest rate. You may also want to check reviews and ask for recommendations when looking for lenders to work with.