Saving money is always a smart move before making a significant purchase. That’s not always possible, though. That is particularly valid when it comes to costs like those associated with a college education, a car or home, or even sudden emergencies like medical expenses.
If you are unable to save money up front, you can borrow money. You will need to know what kind of loan to look for, though, as there are different types of loans for different kinds of purchases.
The following list of 8 loan types can assist you in getting what you need in life:
1. Personal loan
Personal loans come in several forms and can be used for a variety of costs (see types of personal loans, below).
Lenders may give them distinct, purpose-driven designations and offer various conditions based on their purpose, even if many of them function similarly. For instance, LightStream now offers two distinct loan types, each with a different interest rate range, one designed to finance house improvements and the other intended to pay for weddings.
Terms of repayment: 1 to 5 years (based on terms listed on LendingTree as of July 21, 2021)
5.94% to 35.99% APR (based on rates listed on LendingTree as of July 21, 2021)
Depending on the lender, a credit score in the 600s (though a cosigner can help)
You can borrow money to fund what is probably going to be the largest purchase of your lifetime with a mortgage, commonly known as a home loan. For different borrowers, including first-time homebuyers and veterans of the armed forces, there are several types of mortgages available. Similar to auto loans, not making mortgage payments may lead to a foreclosure and eviction.
Terms of repayment: 15 to 30 years
APRs: recorded lows in 2020 and 2021
A credit score in the 500s may be sufficient to qualify for Federal Housing Administration (FHA) mortgage loans, though generally speaking, the higher the credit score, the better.
3. Student loan
Federal loans, which are held and handled by the Department of Education, make up the majority of new and outstanding student loans in the United States. In order to cover any residual difference in the cost of attendance at their school, millions of families have also turned to private or alternative student loans. Repaying student loans is notoriously difficult and dangerous for borrowers who are unaware of their choices.
Payment conditions: ten to twenty-five years for government loans and five to fifteen years for private loans
Federal loan APRs range from 3.73% to 6.28% (for 2021–2022); rates from top private lenders range from 1.04% to 13.49%. (as of July 21, 2021)
A cosigner or strong credit is required for private loans; N/A for federal loans.
4. Loans for Home Equity
You might be able to obtain a home equity loan, commonly referred to as a second mortgage, if your house has equity. The loan is secured by the equity you have in your home—the portion that belongs to you and not the bank. Typically, you are permitted to borrow up to 85% of the equity in your house, which is disbursed as a single payment and repaid over a period of five to thirty years.
Simply deduct your mortgage debt from the assessed value of your home to determine its equity. Your equity, for instance, would be $100,000 if you owe $150,000 on your mortgage and your house is worth $250,000. Based on your lender’s policies and the 85% loan limit guideline, you could perhaps borrow up to $85,000 with $100,000 in equity.
5. Loans for credit-building
Small, short-term loans are used as credit builders and are obtained for this purpose. You don’t need strong credit to qualify, unlike ordinary loans, because they’re aimed for persons with no or little credit. Credit unions, community banks, Community Development Financial Institutions (CDFIs), lending circles, and online lenders are frequently where you can obtain credit-builder loans.
Unlike with a traditional loan, you don’t get the money up front; instead, you make predetermined monthly installments and get the money back at the end of the loan term. Typical credit-builder loan amounts vary from $300 to $3,000, with annual percentage rates (APRs) ranging from 6% to 16%.
Particularly for young individuals, credit-builder loans can be a very reasonable and secure way to begin developing credit. For instance, if you set up auto-pay for your payments, you won’t have to worry about remembering to make payments and can completely automate the process of building credit.
6. Loans for Debt Consolidation
By applying for a new loan to pay off all of your existing obligations, debt consolidation enables you to simplify your payments by having only one monthly loan payment to make. A debt consolidation loan can benefit you in two ways if you have high-interest debts like credit cards or personal loans. To start with, you might be eligible for a lower monthly payment. Second, you might be eligible for cheaper rates, which can enable you to make long-term financial savings.
You must first shop around for a cheaper rate than your present loan or credit card in order to obtain a debt consolidation loan that lowers your payments. Additionally, if your credit has improved since you obtained your existing loan or credit card, you are more likely to get approved. If you are approved, your lender might pay your debts automatically, or you might have to do it yourself.
7. Pawnshop Loans
Another loan option that we typically advise against is pawnshop loans because of its high costs, low loan amounts, and short repayment terms. You must bring something of value to the pawnbroker in order to obtain a loan from a pawnshop, such as a power tool, jewelry, or a musical instrument.
The item will be evaluated by the pawnbroker, and if you accept their loan offer, it will normally range from 25% to 60% of the item’s resale value. Usually within 30 days, you’ll get a pawn ticket that you’ll need when you come back to pay back the loan. The pawnbroker gets to hold your item to sell it for a profit if you don’t come back or if you lose your ticket.
8. Loans for Boats
Banks, credit unions, and online lenders all provide boat loans, which are specifically made to finance the purchase of a boat. There are two types of loans: unsecured and secured. Secured loans require your yacht as security. It’s important to keep depreciation in mind, just like with any loan tied to a vehicle.
Over time, boats and other vehicles lose value, particularly if you acquire a brand-new boat. It’s possible to owe more on the loan than you can get back if you choose a long-term loan, don’t put much money down, and/or sell your boat soon after buying it. This implies that you’ll have to continue making loan payments even after selling the yacht, which is not a position you want to be in.