There are many types of loans, and figuring out which one suits your needs can sometimes be a daunting task. Mortgage loans, car loans, student loans, secured loans, with and without guarantors, open and closed – the list can be quite large.
Do not worry, now we will try to help you begin to navigate the difficult world of loans. We have divided the types of loans for you into several groups so that you can quickly sort out.
You claim a loan for a certain amount, known as your credit limit. You can use such a loan as needed. As soon as you pay the spent amount, you can re-use the credit line. The most common example is a credit card. It allows you to borrow as much money as you need within the credit limit. Extinguish a loan in a convenient way for you without a structured payment. After closing at any time you can reopen the loan.
Most likely, such a loan has a variable interest rate, which can rise at any time. If you pay only the minimum payment, you can fall into the trap and pay interest on the loan for a long time.
Closed types of loans
These include car loans, mortgage loans, student and others. You, as a borrower, have a structured payment schedule that determines the amount and amount of each payment. As soon as the debt is fully repaid, the loan is closed, the contract is no longer valid. If you want to borrow again, you will have to go through the whole procedure from the very beginning. A personal loan can also fit this definition. You charge a certain amount for a specific period. The rate on such loans can be both fixed and floating.
If you know exactly what amount you need, and you want to be able to completely close the contract – closed loans will be an ideal option for you. Pay attention to the fact that there are often commissions for the use of such loans.
Fixed interest loan
This loan has a specific rate for the duration of the contract. For example, if you agreed to 5% for 60 months, the rate will remain unchanged for all 5 years of the loan.
In this case, you have a predictable rate for the duration of your loan. You know exactly how much you will pay each month. There is a small minus of such a contract, you can not use the reduced rate on the loan.
Variable rate loan
These loans have interest rates that may change to reflect changes in the financial market. For example, you can sign an agreement for 60 months, in which the loan rate is indicated at 5% for the first 24 months, but then the rate can vary from 3% to 12% for the remaining loan period.
A plus and at the same time a minus in such a loan is dependence on the market rate. Which can, how to fall during the term of your contract, and then your rate will also decrease, and, conversely, rise.
You can get access to such a loan by providing guarantees to your lender in the form of collateral, such as a car or real estate. In the event that you are unable to pay, the bank may take over the property and use the pledge to receive the amount borrowed.
Often, borrowers may receive a lower interest rate because there are certain guarantees that the lender will get his money back if the borrower stops paying the loan. A secured loan also has disadvantages – firstly, a long process due to the valuation of your property. Secondly, you can not spend money the way you want, only for those purposes that are specified in the contract. Thirdly, in case you do not cope with your debt obligations, the pledge will be transferred to the use of the creditor.
This is a loan that does not require any collateral. Annual interest rate depends on your credit history and total income. The most common example is a loan for any purpose, as a rule, to obtain such a service, it is not necessary to indicate the purpose of the loan.
The advantage of this product will be flexibility – you can spend money the way you want. Most often, obtaining a loan without collateral occurs many times faster because a minimum set of documents is required to evaluate the candidate. If you need a small amount and you do not have valuable assets or do not want to attract them, this is what you need.
But, most likely, it is necessary to be prepared for the big interest rate.
For each person, depending on the situation, a certain type of loan may be useful.