Personal loans are among the most versatile types of loans, providing funds for pretty much any purpose, as long as it’s not illegal. Individual lenders may put restrictions on what their loans can be used for. For example, you generally can’t use a personal loan for college education.
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Some lenders may offer numerous personal loan options for different purposes (like medical bills, debt consolidation or weddings), each with its own APR range. However, the vast majority of personal loan providers offer loans with nearly limitless uses.
Auto loans allow borrowers to pay off a vehicle over time. They are typically secured by the car being financed, meaning that if the borrower does not make their payments, the lender can repossess the car to get its money back. Auto loan rates depend on both whether the vehicle is new or used and how long the loan lasts for.
It’s also good to note that people can take out loans for pretty much any other type of vehicle, too, including boats, aircraft and more.
Student loans pay for education and education-related costs. That includes school tuition, housing, food, textbooks, transportation and more. These loans are not supposed to be used for costs unrelated to school, though lenders do not monitor how the money gets spent.
Mortgage loans allow people to purchase a house without having enough money to pay for it all upfront. With a mortgage, the borrower can live in their home before they’ve paid the full price for it. But the financial institution that issued the loan owns the house until the mortgage gets fully paid off. Mortgages are secured by the house in question.
Sources: Private companies, government (FHA, VA, USDA)
Home equity loans are just as versatile as personal loans. Borrowers can use them for just about anything. The amount of money that a borrower can take out depends on the equity in their home, which is the house’s worth minus the balance left on the mortgage. Depending on those values, a home equity loan may offer higher dollar amounts than personal loans.
Home equity loans are similar to another product called home equity lines of credit (HELOC). Both are secured by your house. The difference is that a HELOC functions like a credit card, in that you can borrow up to a certain amount of money at any time, but aren’t obligated to borrow.
Credit-builder loans are loans for people who don’t need to borrow money but want to establish or reestablish a history of timely payments and thus improve their credit. With a credit-builder loan, a financial institution puts money into a savings account (usually $300 to $1,000). Then, the borrower pays this amount to the lender, plus interest at an APR of 6% to 16%, over 6 to 24 months. The lender reports payments to the credit bureaus each month, which helps to build the borrower’s credit history. At the end, the borrower gets access to the savings account with their funds.
Essentially, credit-builder loans work in the reverse of a normal loan. Instead of getting money and then paying it back in installments, the borrower pays money in installments and then gets a lump sum at the end.
It’s possible to get a loan from a friend or family member rather than a financial institution. The major benefit to this is the potential for a low interest rate, or even no interest, along with flexible repayment terms. That, of course, depends on how generous the friend or family member is. But he or she will not have the power to pull the borrower’s credit report directly, and is less likely to care about their credit score.
When borrowing from someone you know, it’s important to draw up and sign a loan agreement so that you can be held accountable for borrowing. And it’s important to take borrowing from this person as seriously as borrowing from a financial institution – doing otherwise would be a breach of trust.
Payday loans are extremely predatory short-term loans that must be paid back with interest when the borrower receives their next paycheck. These loans are usually $500 or less, and the lender will often charge a fee equivalent to a 400%+ APR.
Because the loans are secured by the borrower’s upcoming paycheck, they are available to people who have bad credit. However, due to the enormously high costs, they are absolutely not worth pursuing
Auto title loans are loans secured by the document that grants legal ownership of a car. The borrower receives 25% to 50% of their car’s value upfront, and then has to pay it back over a short term, usually only 15 to 30 days. If they cannot pay in full within that period, it may be possible to “roll over” the loan for another month in exchange for additional fees.
The costs for an auto title loan can end up being as much as 25% of the loan amount. And if the borrower cannot pay off the loan, the lender can take their car. It’s definitely best to avoid these loans.
Pawn shops let people bring in items and receive 20% to 60% of their value in return. The pawn shop takes temporary possession of the item but is not allowed to sell it for a certain amount of time, often a few months. The person who pawned the item can come back at any time during this period and pay off the loan plus interest (which can range from around 2% to 25% per month). If they do, they get their item back. Otherwise, the pawn shop can sell the item to make its money back.
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