What are the different types of loans? Loan is defined as a debt that is supported by a note or a document. There are many different factors that constitute a loan. These factors are the principal amount (the amount you borrowed), the interest rates (the amount that you pay in excess of the principal amount) and the payment dates (the dates that the loan should be paid). With the many different expenses we have these days, we cannot help to not need to get a loan. This is why more and more lenders are getting into the business. This is why more and more types of loans are being introduced to us. There most common types of loans are open ended loans, close ended loans, secured loans, unsecured loans, conventional loans, advance fee loans, and payday loans among others.
The open ended types of loans are those that entail that one can borrow again and again. The most common types of loans under the open ended types include credit cards. You see, when you have a credit card, you can use it to purchase items and as long as you are paying, you will have an available balance on the card. This only means that you will be able to use the credit cards again.
Close ended types of loans are those that entail that you cannot borrow again once the loan has already been paid. When you pay your close ended loan, the balance you have will just decrease. However, it will not entail that you can borrow again. You do not get an available balance of any sort. When you need to use the loan and borrow again, then you will need to reapply for the loan. The most common types of the close ended loans include auto loans, student loans, and even mortgage loans.
Secured loans are types of loans that rely on certain assets or collaterals. These are the loans that state that if you cannot pay for the amount you loaned, the lender will be able to take possession of the collateral or the asset that was agreed on. Keep in mind that the interest rates in these types of loans are lower than those of unsecured loans. But before your loan will be approved, the value of your asset should be determined first.
Unsecured loans are types of loans that do not require any sort of collateral or assets. They normally have higher interest rates. They are also the ones that are harder to get. The main reason for this is that if you are not able to pay the loan, the lender will need to exhaust many different ways to get money from you. They are not guaranteed that you can pay as these types of loans rely on your credit history and income alone.
Conventional loans are types of loans that are not insured by government agencies. These are not so bad, although keep in mind that you should make sure that you are dealing with legitimate operations at all times.