The Most Common Types of Loans Explained: This is What to Know

In the United States, only 23% of the population had no debt in 2018. It’s a pretty normal thing to have in this country, especially since there are many milestones that are unattainable without some help.

You may be looking into getting extra cash, but maybe you’re not sure which loan to take out.

In this article, we’ll discuss the most common types of loans so you know which ones are right for you.

Personal Loans

As the name suggests, personal loans are for you, not a business. You can typically use them to fund anything you want in your life.

There are two types: unsecured and secured. Unsecured personal loans require no collateral but have higher interest rates. Secured personal loans do require collateral, but because of that, they have lower interest rates.

Traditionally, you’d get personal loans from brick and mortar banks. But today, you have tons of online options. For example, companies like CaptainCash.ca offer personal loans with quick approval rates.

Payday Loans

If you’re strapped for cash and need emergency money, you can use a payday loan. This gets you through the period between one paycheck to the next. Once you get the next paycheck, this is applied to your loan repayment.

Payday loans are excellent for getting funds quickly, but interest rates are super high.

Student Loans

Tuition isn’t cheap; the majority of students aren’t able to afford it on their own. Student loans are available to cover the costs.

There are two types: federal and private. Typically, federal loans have lower interest rates.

Mortgages

If you’re looking into buying a house, then chances are, you can’t outright buy it with all your savings. Financial institutions will provide you with a mortgage, which is a low-interest loan you repay over several decades.

If you miss and/or fall behind on payments, you’ll then risk foreclosure on your home. This means the lender has the right to sell the house to recoup losses.

Debt Consolidation Loans

Maybe you’ve already taken out a few loans and have run up your credit card debt as well. A debt consolidation loan lets you combine all your debts. This not only gives you fewer payments but also lower interest rates as well.

Small Business Loans

Do you need some extra capital to start a business? Then a small business loan can help.

While you can borrow from any lender that’s willing to provide you with funds, most small business owners turn to the US Small Business Administration (SBA).

Knowing the Types of Loans Can Help You in a Pinch

Now that you know what the different types of loans are, this can really help you out when you need some funding.

The next step is to research lenders and find the best interest rates. Once you do that, you’ll be well on your way to reaching the next milestone in your life.

For more financial advice, please take a look at our other blog articles.