Evolving needs of the millennial lifestyle has prompted a diversification of different types of loans. Earlier, the only popular loans we heard of included personal loans, education loans and business loans. At this moment, any standard bank gives out 12 to 13 kinds of loans that can be further classified as personal, business and/or equity loans. Trying to grasp the entire dynamics of loans can be extremely daunting and befuddling without the guidance of loan counsellors and financial advisors.
So we thought of painting a clearer picture that can help you decide what kind of loan you may need right now –
- Student loans: as the name states, it is offered to college students and their families to cover their cost of high education. This can be of two main types: federal student loans and private student loans.
- Personal loans: This broad term includes all loans sanctioned by a financial institution for personal expenses. The money can be used for a number of purposes including paying off credit card debts and other outstanding debts.
- Auto Loans: the name is quite self-explanatory. The money from this loan can be used for buying automobiles. If you miss your payments, you can lose your car. An auto loan can also be given by a car dealership, but often at higher rates.
- Small business loans: this is usually granted to entrepreneurs to help them start a SMB and/or expand a business.
- Payday loans: this is quite a misleading term as these are more like an advance on your paycheck that comes with high interest rate and processing fee. This is also strongly condemned by the government.
- Retirement and life insurance loan: anyone with retirement funds can borrow from their accounts. That makes payments much relaxed. Nonetheless, you should know that you may face severe tax consequences if you fail to pay a retirement and/or life insurance loan.
- Consolidation loans: this can also be categorized under personal loans. They coalesce a number of small and large loans under one big loan and one, flat interest rate. They can also be taken out in the form of second mortgages.
- Cash Advances: this is a short-term loan that you can take out against your credit card. This is again not advisable as the interests are high and the window for payback is really small. You can also get cash advances by writing a check to payday lenders.
- Home equity loans: this is possibly the most famous of them all. They are good for home renovations and paying off student loans. You need to be careful as this involves your biggest asset and it must be repaid before you sell your home.
- Loans for veterans: this loan is usually made available by the Department of Veterans Affairs to veterans and their families. The VA is also a co-signer and guarantor who measures that you get a bigger amount for lower rates.
These 10 loan types will help you understand the different purposes and requirements of different types of loans. Taking out the right kind of loan will always help you get the maximum possible amount for the least interest.