Types of credit and consumer loans
Loan contracts come in all kinds of forms and on various terms, ranging from simple promissory notes between friends and family members to more complex loans such as mortgages, cars, payday loans and students.
Banks, credit unions and others lend money for important but necessary items such as a car, student loan or home. Other loans, such as small business loans and those from the Department of Veterans Affairs, are only available to certain groups of people.
Regardless of the type, each loan – and its terms of repayment – is governed by national and federal guidelines to protect consumers from unsavory practices like excessive interest rates. In addition, the term of the loan and the default conditions must be clearly detailed to avoid any confusion or potential legal action.
In the event of default, the conditions for recovery of the outstanding debt must clearly specify the costs involved in the recovery of the debt. This also applies to parts of promissory notes.
If you need money for an essential item or to help you manage your life, it is a good thing to familiarize yourself with the types of credit and loans that might be available and the types of conditions that you can expect. .
Different types of loans that can be applied to your needs
Types of credit: open and closed credit options
The two basic categories of consumer credit are open and closed credits. Indefinite credit, better known as revolving credit, can be used repeatedly for purchases that will be reimbursed monthly, although full payment of the amount due each month is not required. The most common forms of revolving credit are credit cards, but home equity loans and home equity lines of credit (HELOC) also fall into this category.
Credit cards are used for everyday expenses such as food, clothing, transportation and small home repairs. Interest charges are applied when the monthly balance is not paid in full. Interest rates on credit cards average 15%, but can be as low as zero% (temporary and introductory offers) and as high as 30% or more, depending on payment history and the consumer’s credit rating. Loans for bad credit can be difficult to find, but lower interest rates are available in nonprofit debt management programs, even for credit scores below 500.
Fixed capital credit is used to finance a specific goal for a specific period of time. They are also called installment loans because consumers are required to follow a regular (usually monthly) payment schedule that includes interest charges, until the principal is paid off.
The interest rate on installment loans varies by lender and is closely linked to the credit score of the consumer. The credit institution may seize the consumer’s goods as compensation if the consumer is in default of payment.
Examples of open-ended credit:
• Car loans
• Loans of devices
• Payday loans
Types of loans
The types of loans vary because each loan has a specific use. They can vary based on duration, how interest rates are calculated, when payments are due, and several other variables.
Debt consolidation loans
A consolidation loan aims to simplify your finances. Simply put, a consolidation loan pays off all or more of your outstanding debts, especially credit card debts. That means fewer monthly payments and lower interest rates. Consolidation loans usually take the form of secondary mortgages or personal loans.
Learn more about debt consolidation loans.
Student loans are available to students and their families to cover the costs of higher education. There are two main types: federal student loans and private student loans. Federally funded loans are better because they tend to have lower interest rates and better repayment terms for borrowers.
Learn more about student loans.
Mortgages are loans distributed by banks to allow consumers to buy homes they cannot afford to pay in advance. A hypothesis