Types of Loans

Types of Loans

Consumer Installment Loans

A consumer installment loan is used to pay for personal expenses for you and your family. Examples are:

  • Auto loans, whereby the automobile you are purchasing is used as collateral for the loan
  • Unsecured loans for short-term needs, such as buying a computer

 

What are some other reasons for obtaining a consumer installment loan?

 

The Loan to Own Money Smart module provides more detailed information on consumer installment loans.

Credit Cards

Credit cards give you the ongoing ability to borrow money for household, family, and other personal expenses.

 

Having a credit card allows you to buy things without actually having the money right away. Remember that if you are not careful in spending, you can get into big trouble—you could be burdened with debt. You need to be sure you are able to make the minimum monthly payment on your credit card bill.

Home Loans

There are three main types of home loans:

Home purchase

  • A home purchase loan is made for the purpose of buying a home.
  • It is secured by the home you are buying.

 

Home refinancing

  • A home refinancing loan is a loan that replaces an existing home loan by paying it in full and replacing it with a new home loan.
  • A cash out refinance loan allows you to borrow more money than owed on the loan to be replaced.
  • Homeowners often refinance their home loans for a lower interest rate or to obtain money for home repairs or other personal needs.

Home equity

  • Home equity loans allow you to borrow money that is secured by your home.
  • Equity is the value of the home minus the debt or what you owe on the home loan:

Value of Home

$250,000

Minus debt

-200,000

Equity

$50,000

  • If you already have a home mortgage, such as the original home purchase loan, the home equity loan would be a second mortgage also secured by your home.
  • A lender may allow you to borrow up to a certain percentage of your home’s value, generally up to 80 percent.
  • These loans can be used for any reason.

 

Remember: Any type of home loan you obtain is secured by your house. If any home loan is not repaid, you could lose your house.