5 Types of Loans and How They Work
Types of Loans
Consumer debt is one of the realities of adult life. You get it with credit cards, and, more importantly, you get it with loans.
Unfortunately, many people get to adulthood without really understanding the different types of loans and how they work.
If that’s your situation, keep reading, and we’ll cover some key types of loans you may run across.
Personal Loan
Many adults wind up taking out a personal loan to help them cover unexpected costs or to make a purchase they couldn’t otherwise afford.
You get the loan in a lump sum, deposited directly into your bank account.
You also typically get a fixed monthly payment. Repayment times range from 1 year up to 5 years, depending on the size and terms of the loan.
Student Loan
Student loans are one of the more common forms of debt that people carry into adulthood.
Undergraduate and graduate students take out loans, usually from Federal programs, to cover tuition and related college costs.
Repayment typically starts 6 months after you graduate or leave college.
The standard repayment term is around 10 years with payments between 10 to 15 percent of discretionary income.
Hard Money Loan
For people looking at real estate investing who can’t get other kinds of financing, you may wind up taking out a hard money loan.
A bank typically doesn’t operate as a hard money lender. Instead, you take out a loan from another investor.
The interest rates are typically higher, and the repayment periods range from 1 to 3 years.
Mortgage
For most people, you’re more likely to get a mortgage for a real estate purchase.
A mortgage is a long-term loan used to purchase a home. They usually have relatively low interest rates and fixed payments.
Repayment periods can vary from 10 years to 30 years, but the most common ones are 15-year and 30-year mortgages.
Auto Loan
Another very common type of loan is an auto loan for a new or used car or truck.
These loans use your credit score or credit report to decide on your interest rate.
Beyond that, you typically get a fixed payment amount. Repayment periods can vary, but most new car loans use a 6-year repayment schedule.
Almost every adult will take out several different types of loans over the years.
Knowing what you can expect can help you navigate the process a little more efficiently.
Just make sure you always know what the terms of a loan mean in practice.
Category: Loans
