When you’ve decided that you need to get a loan, you might be wondering exactly what type of loan you should get. In general, most people find themselves limited to only a few loan options because that’s all that they’ve ever known? there are a variety of options available depending upon your needs, however.
To help you in exploring all of your options when searching for a loan, below you’ll find basic information on several common types of loans that you might find when shopping around for a loan.
Secured loans are those loans which have collateral providing a guarantee that the loan will be repaid even if the borrower is unable to make their payments. The object used as collateral can vary greatly depending upon the purpose of the loan and the value of the collateral? common types of collateral include real estate deeds, automotive titles, home equity, and even jewellery and antiques.
Unlike secured loans, unsecured loans do not have any collateral serving as a guarantee of repayment. These loans tend to have a higher interest rate than secured loans, but since there is no collateral securing the loan you don’t have to worry about the bank or lender repossessing your collateral if you are unable to make your scheduled payments.
Automotive loans are a type of secured loan that is used to purchase new and used cars, trucks, and other vehicles. Unlike some other types of secured loans, the purchased item in an auto loan (the vehicle) serves as its own collateral to guarantee the loan.
The bank or auto loan lender gains a lien, or legal claim on the automotive title, to the vehicle until the loan has been repaid; once the loan has been paid in full, the lien on the title is legally released and the borrower completely owns the vehicle.
Much like an automotive loan, mortgage loans allow the purchased item to serve as collateral for the loan itself. In the case of mortgage loans, the purchased item is a house or other piece of real estate? because of this, most mortgage loans have a loan term of 10, 20, or even 30 or more years.
Mortgage loans are usually subject to a variety of fees at the closing of the deal, which are known as closing costs, and may also require that insurance be kept on the real estate until the loan has been completely repaid.
Home improvement loans
Home improvement loans are those loans that are granted with the express purpose of financing repairs, improvements, and expansions on real estate. The equity in the home or real estate often serves as collateral for the loan, and the improvements that are made tend to increase the value of the property in the end. Depending upon the lender, home improvement loans can either be loans for a specific amount or a credit line with a limit of that amount.
Homeowner loans are somewhat like home improvement loans in that they use home equity as collateral, but the subject of the loan is much more open. Instead of using the money from the loan to repair or improve specific real estate, homeowner loans can be used to consolidate personal or business debt, purchase a vehicle, or other purposes.
Because of the ease of working with home equity, homeowner loans usually have lower interest rates and more flexible loan terms than some other secured loans.
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