Different Types of Loans: Choosing the Right One
A loan is a lump sum of money that you borrow with the expectation of paying it back at once or over a period of time with interest. Loan amount and interest may vary depending on your income, debt, credit history, and other factors.
The reasons why you would want a loan may differ. Some needs it to buy a new home, while others will use it for a new car. Whatever your reasons may be, you need to be familiar with the different loan options available to you to make an informed decision.
Secured loans require a collateral so you would need to leverage a personal property or asset in order to acquire one. And since there is a collateral, interest rates are also often lower for secured loans. But, it’s not that easy as your assets are often appraised to confirm its value and you are only allowed to borrow the amount it was assessed for. Getting title loans from reputable lenders, such as Easytitleloansutah.com, for houses and vehicles are a good example of a secured loan. Defaulting on a secured loan will result in the confiscation of your property or asset.
It is more difficult to qualify for unsecured loans and interest rate may be higher as these kinds of loan do not need an asset for collateral. Qualifying for unsecured loans will require that you have a good income and exceptional credit history. A solid payback plan is also an advantage. If you default on this, be ready for a lawsuit.
Conventional loans can be classified as mortgage loans from mortgage lending institutions not insured by a government agency, such as the Federal Housing Administration (FHA), Rural Housing Service (RHS), or the Veterans Administration (VA). These loans may be conforming or non-conforming. Conforming loans follow the guidelines set by Fannie Mae and Freddie Mac while non-conforming loans do not.
You can avail of these loans repeatedly, however, there is a fixed credit line limit. Once you’ve reached the credit limit in question, you need to pay the amount first before you can borrow again. Credit cards are a good example of these loans.
Close-ended loans, unlike open-ended loans, can only be borrowed one time. Your loan balance decreases for each payment you make but your credit line does not replenish. The only way to borrow again is to go through the whole loan process again.
Before applying for any type of loan, make sure that you arm yourself with the right information to avoid costly problems later on.