Are You Familiar With 7 Types of Loans?

Loans offer you solace when you’re in serious need for money. There are different types of loans, so it’s important to know your borrowing options.

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Open-Ended Loans

These are loans you can borrow again and again. Such loans include lines of credit and credit card. With these types of loans, you have a credit limit against which you can purchase anything you like. When you buy something, there is a decline in your available credit. On the other hand, your available credit increases when you make timely payments, thus allowing you to use the same credit time and again.

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Close-Ended Loans

It’s not possible to borrow these types of loans once you have made the repayment. When payments are made, the balance of close-ended loans goes down. Since you cannot obtain these loans over and over, you need to apply for another loan if you need more money. Auto or car loans, mortgage loans, and student loans are some of these types of loans.

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Secured Loans

These loans require an asset as collateral for the loan. This means that the lender can seize the asset in the event of loan default and use it to cover the loan. Since these types of loans use collateral, interests rates are usually lower than unsecured loans.

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Unsecured Loans

Unlike secured loans, this type of loan doesn’t require an asset for collateral. It is sometimes difficult to obtain these types of loans. However, most lenders offer unsecured loans at higher interest rates. In the event of default, the lender may be forced to file a lawsuit to recover the loan.

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Conventional Loans

These types of loans aren’t insured by any government agency.

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Payday Loans

 
These are short-term loans that you can borrow against your next paycheck. Here your paycheck is used as a loan guarantee. These types of loans may have high annual percentage rates.