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Top Loan Types + How They Hurt or Help Your Bottom Line

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Top Loan Types + How They Hurt or Help Your Bottom Line

Why didn't I learn this in high school? There are 348928 terms to know when it comes to loans (pun fully intended) and we're here to share basic definitions of each so that you feel confident and empowered as you make loan decisions going forward.

 

Top Loan Types + How They Hurt or Help Your Bottom Line

Copy of blog image loan types

 

Loan Type Descriptions

 

A loan can have more than one of the below characteristics. For example, a home equity line of credit is secured (by the house), revolving, and a variable rate loan.

 

Secured

When the loan has something backing it, called collateral. This could be a physical item or cash. Car loans are secured by the car, home loans are secured by the home, etc. Secured loans tend to have lower interest rates than unsecured.

 

Unsecured

A loan with no collateral. Personal loans, credit cards, lines of credit, and anything else that doesn't have a physical item or cash put down as collateral. Unsecured loans tend to have higher rates than secured because they're higher risk to the institution.

 

Open-End a.k.a. Revolving Loan

This type of loan allows you to borrow and pay back an amount repeatedly. For example, a credit card - you charge it, then pay it back, then can charge it again. 

 

Closed-end aka Term Loan

This is a loan where there is one fixed amount that you borrow once, they pay back in full over the course of months or years. The 'term' is the length of time in which you're paying it back. 

 

Credit Score Hack: the credit bureaus like to see what they call a 'mix' of credit, which means you have some term loans and some revolving. 

 

Fixed Rate

The rate of interest that you pay on the amount borrowed stays the same over the course of the loan. Rates vary drastically between loan type and term, and can be anywhere from about 2.5% to over 30% annual percentage rate. Paying attention to your rate and getting the lowest one you can will pay off.

 

Variable Rate

The rate of interest that you pay on the money you borrowed can go up or down over the course of the loan term. 

 

Side note on interest rates and loan types:

The rate you get depends on the type of loan and your credit history. Check out our Credit Score Chart + 5 Key Factors. When comparing rates, focus on the APR (Annual Percentage Rate) because institutions are required to provide this as a consistent way to compare loans across the industry.

The APR on a loan at Bank 1 and APR at Bank 2 is like comparing apples to apples 🍎 🍎

While advertised Interest Rates at Bank 1 and Bank 2 could have a very different impact on your wallet. Comparing apples to oranges. 🍏🍊

 

Top 10 Most Common Loan Types

blog image loan types (2)

1. Home Loans - 1st Mortgages, Home Equity Loans, Home Equity Lines of Credit



2. Auto Loans



3. Personal Loans



4. Personal Lines of Credit

 

5. Share Secured Loans 

 

6. Student Loans



7. Credit Cards and Cash Advances

 

8. Business Loans



9. Debt Consolidation Loans



10. Payday Loans and Title Loans*


*We could write a whole post about #10 (and we will) but for now, know that these types of lenders can be predatory and these types of loans are not going to help you financially. Build a relationship with a credit union, even if you don't think you can get an account. We can often work with you to provide some options. 

 

Our Favorite Calculators for Making Loan  Decisions

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The reality is, sometimes you just need to crunch the numbers.

Here are our favorite free financial calculators to help you do just that. From credit cards to auto loans, mortgage calculators and more - we've got you covered.

 

And remember - we love to provide free resources for our members and our community. If you're trying to get out of debt, Get Our Debt Relief Bundle and Say Cheers to a Debt Free Future, and download some helpful worksheets and tutorials. 

debt-relief-bundle

This article is intended to be a general resource only and is not intended to be nor does it constitute legal advice. Any recommendations are based on opinion only.

Rates, terms, and conditions are subject to change and may vary based on creditworthiness, qualifications, and collateral conditions. All loans subject to approval.

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