Types of Loans and Examples of Lenders

On October 10, 2013

Cart with CashMortgage loan (Wells Fargo)- A mortgage loan is a type of secured loan. If the lender does not get their payments on time, they are able to take over the home. They differ from other types of loans because they are often for larger amounts of money and are expected to be paid off in longer periods of time. Another unique feature about mortgage loans is that they often require a 20% down payment. Although 20% may not seem like a lot, it is when you consider the costs of homes. Even if you are looking for an 100,000 dollar home, you will still have to put down 20,000 dollars up front.

Fixed mortgage rate (BOA)- A fixed mortgage rate involves a loan with a constant interest rate. This means that the interest rate will remain the same throughout the entire life span of the loan. The benefit of a fixed mortgage rate is that you will know how much money you will have to owe every single month.

Adjustable mortgage rate (FHA) – An adjustable mortgage rate has an interest rate that actually changes throughout the life span of the loan. The potential positive about this type of loan is that you can take advantage of a lower interest rate under the right circumstances. However, if the market isn’t doing well- your interest rate will change and go up.

Secured Loan (TD Bank) – A secured loan is when there is a tangible good that the lender can reclaim if the person who gets the loan is unable to pay. For example, a bank that gives a person an auto loan in order to purchase their vehicle. If the person stops making payments, the bank can take back the car. They can sell the car and make their money back. Because the lender has an asset that they can take back, it is less risky than other types of loans.

Unsecured loan – An unsecured loan is different than a secured loan because there is not a tangible good that the lender will be able to take back. For example, a lender who offers a loan so that someone can pay their bills back. An unsecured loan is riskier for the lender, and will come with a higher interest rate. This is definitely something to consider when it comes time to take out a loan.

Student loans (FinAid) – There are two major types of student loans. There are loans that are given out and/or regulated by the federal government and loans that are given out by banks/lenders. In general, student loans that are regulated by the federal government come with lower interest rates.

Credit cards (Amex) – In general, most credit cards come in the form of unsecured loans. Banks or lenders will not be able to reclaim their belongings through your credit card. Therefore, credit cards often have higher interest rates than other types of loans. A potential positive about credit cards is that they are open-ended. This means that once you repay the amount that you have borrowed, you can take out the loan amount again.

3 Responses to “Types of Loans and Examples of Lenders”

  • Being a student, I think the most flexible and economical loan for me are student loans offered by the federal government. I know that many lenders out there are desperate to offer loans to students without considering their credit history, I am afraid the higher rate of interest creates a vicious circle for people like us when we think about paying these loans back.

  • For me, fixed mortgage loan has proved to be a big time saver. Due to fixed rate of interest throughout the loan repayment tenure, I am always aware of how much money I need to keep aside every month. This loan helps in disciplined repayment because of its steady payment schedule. I will suggest people who want to buy a home to go for this loan confidently.

  • Hi People! I am a newly employed professional in the telecom industry. To give a good start to my future plans, I am thinking to buy a home on mortgage loan. But couldn’t decide between the rates, please guide me whether I should go for a fixed rate mortgage loan or the one with floating rate of interest? Thanks in advance!

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