Loans & You: What you need to know about loans

So you’re in a tough spot and you’re looking for a loan? Or perhaps you want to build some credit while spending money on something you might want, but would not normally buy? It is probably safe to say that you are aware that a loan is a type of credit-building debt, but do you know the many different types of loans?

Personal Loan

A personal loan is a sum of money borrowed for personal use. This is not a business or auto loan, and is not to be used in place of a mortgage; it is often money borrowed for a personal purchase, such as new furniture or electronics. Personal loans often have relatively good interest rates, and can be paid off in short amounts of time with regular installments.

Secured loan

A secured loan is a loan where the borrower writes something down as collateral for the institution that lends the funds to borrow in the case the borrower can not pay it back. Often an automobile or a piece of property is used as collateral in a secured loan. The type of collateral will usually vary depending on the length of the loan period. Mortgages are the most common form of secured loans, as the purchased property is it’s own collateral and belongs to the bank in case of default.

Unsecured Loan

Unsecured loans are types of loans that do not require collateral, such as personal loans and debt from credit cards. Interest rates for unsecured credit and loans is often higher than that of a secured loan.

Subsidized Loan

A subsidized loan has extremely low interest. Student loans are often subsidized and the student does not have any interest amount on top of the actual loan amount while the student attends school.

Payday Loan

Pay-day loans are short term secured loans. The collateral is the paycheck of the borrower. These are tricky forms of loans due to the various state laws surrounding them after speculation of a lot of lender abuse.

Regardless of which type of loan you choose to borrow and use, it is always important to know the background of your lender, how to contact them, what your interest rates will be upon receiving the funds, and will that interest rate change down the road or turn into a balloon payment. Know all the facts and details about your loan and how to pay it back, and you will find yourself involved in a successful credit boosting financial endeavor, and hopefully have some great things to show for it when the repayment process is complete.