There are so many types of Loan. Let’s know all the types of loan
1. Personal loan
Personal loans can be used for a variety of expenses, and they can go by various names (see types of personal loans, below).
Though many of them work similarly, lenders may give them specific, purpose-driven titles and offer varying terms depending on each purpose. For example, LightStream currently offers one type of loan specifically to pay for a wedding, and another purpose-made for financing home improvements — with each loan type having its own interest rate range.
Repayment terms: 1 to 5 years (based on terms listed on LendingTree as of July 21, 2021)
APRs: 5.94% to 35.99% (based on rates listed on LendingTree as of July 21, 2021)
Credit score: 600s, depending on the lender (though a cosigner can help)
A mortgage, also known as a home loan, allows you to borrow to finance what is likely to be the biggest purchase of your lifetime. There are various types of mortgages for different borrowers, including first-time home buyers and military veterans. Like with auto loans, failing to repay your mortgage could result in a foreclosure and eviction.
Repayment terms: 15 to 30 years
APRs: Hit record lows in 2020-2021
Credit score: The higher, the better, with the 600s being a common baseline; but a score in the 500s could be enough to secure Federal Housing Administration (FHA) home loans
3. Student loan
Most new and outstanding student loans in the U.S. are federal loans, meaning they are held and managed by the Department of Education. Millions of families have also relied on private or alternative student loans to bridge any remaining gap in their school’s cost of attendance. Student loan repayment is notoriously fraught with pitfalls, making it treacherous for borrowers who aren’t familiar with their options.
Repayment terms: 10 to 25 years for federal loans; 5 to 15 years for private loans
APRs: 3.73% to 6.28% for federal loans (for 2021-2022); 1.04% to 13.49% among top private lenders (as of July 21, 2021)
Credit score: N/A for federal loans; good credit or a cosigner for private loans
4. Auto loan
Borrowing money to pay for an asset that quickly and continuously depreciates in value isn’t ideal. But if you need wheels, an auto loan could be your best remaining option. You could shop around with financial institutions as well as car companies and dealerships. Just keep in mind that your car could be seized if you fail to repay your loan.
Always make equal comparisons by looking at APRs, loan terms and other details of each lender’s quote. If you have excellent credit, you might even qualify for an introductory rate of 0.00%.
Repayment terms: 2 to 7 years
APRs: Average rates for new cars in 2020 ranged between 2.65% and 14.20%, depending on creditworthiness
Credit score: No minimum, but a score in the 600s should keep your APR in single digits
5. Payday loan
A payday loan is designed to advance your wages. You might be tempted to borrow a payday loan to cover an unforeseen expense before your paycheck hits your checking account. Payday loans are typically considered predatory debt, however, because of the short repayment periods and often triple-digit APRs, not to mention fees. You might borrow $500 but end up repaying thousands of dollars.
Because they’re risky and costly, consider payday loan alternatives, such as cash advances on your credit card.
Repayment terms: 7 to 120 days
APRs: Average rate approaches 400%
Credit score: Not a factor
6. Pawn shop loan
Perhaps the most traditional form of a secured loan, a pawn shop loan involves yielding a piece of property (such as jewelry or high-priced electronics) for short-term cash. When the borrower repays their debt on or ahead of schedule, the shop owner returns the property. If the borrower doesn’t repay the debt, the shop owner may sell the item after a certain period has elapsed, making this a risky proposition.
Your credit is not factored into the loan, and repayment terms and interest rates vary by pawn shop.
7. Small business loan
If you’re an entrepreneur or small business owner, you might borrow to fund your next big idea or simply maintain operations. Like with many of the other types of loans on this list, small businesses loans are available from banks, credit unions and online lenders. And you could qualify whether your business is a sole proprietorship or limited liability company (LLC) in your garage or a smaller corporation.
Repayment terms: 3 to 300 months
APRs: Vary widely by lender and other factors
Credit score: 680 to unlock lower-rate loans, though scores as low as the 500s could be enough for loans with higher rates and fees
What are the different types of personal loans?
Here are some of the most popular types of personal loans and what you need to know about each.
Common types of personal loans
Loan type Purpose
8. Credit builder loan A secured loan that helps you to build positive credit history
9. Debt consolidation loan Combine multiple debt accounts, ideally with a lower interest rate
10. Holiday loan Can help cover the cost of gifts and other holiday expenses
11. Home improvement loan Used to pay for home improvement projects and repairs
12. Medical loan Can cover the cost for medical treatment or living costs while you’re recuperating from an illness or procedure
13. Vacation loan Allows you to cover the cost for a vacation
14. Wedding loan Helps you pay for your big day and related expenses
15. Recreation vehicle and boat loans Financing for the toys in your backyard or nearest body of water
16. Pool loan Funds to build or repair the concrete pond on your property
17. Family loan Skip the bank and, despite the risks, consider borrowing directly from a family member or friend
8. Credit builder loan
A credit builder loan is intended to help you do just that — build your credit. Whether you’re trying to establish a credit history or repair one that has been less-than-stellar, a credit builder loan gives you the opportunity to show lenders that you are a responsible borrower by making timely payments on the loan.
Once approved, the amount of the loan is placed in a savings account, which is held by the bank and is not at your disposal. You make monthly payments on that amount, and once you’ve paid it all back, then you receive the funds along with interest or dividends in some cases.
As long as you make all your payments on time and in full, you’ll likely get a boost to your credit score. Most credit builder loans are small — from $300 to $1,000 — and range from six to 24 months. They’re typically much easier to get than other personal loans as there’s little risk to the financial institution in granting you one. Note, however, that in some cases you’ll be charged an administration fee for such loans.
9. Debt consolidation loan
Debt consolidation loans allow you to roll multiple debts into one with a new interest rate and repayment term. The key perks to a debt consolidation can include:
Repaying your debt with a lower interest rate
Shortening or extending the amount of time you’re in debt
Getting a fixed interest rate when you may have had a variable rate
Reducing the number of debt payments you make each month
Switching to a preferred lender with better customer service
In most cases, when you’re approved for a debt consolidation loan, the lender will deposit funds into your bank account. You’ll then use that money to pay off your old debts (though in some cases, the lender will pay off your creditors directly). Depending on the lender, you could borrow from $2,000 to $35,000 or more.
Depending on your credit and the type of debt you’re carrying, debt consolidation loans can help you repay your debt at a lower rate. When comparing your loan options, pay attention to loan APRs, or annual percentage rates. This rate represents the interest rate plus fees, and is a more accurate representation of your cost of borrowing.
The best rates are offered to borrowers with excellent credit and finances. These borrowers may also consider a balance transfer credit card as a potentially more affordable way to consolidate or refinance credit card debt. If you have bad credit, however, a debt consolidation loan may not be a viable way to save money over repayment, unless you have debt with exceptionally high rates.
10. Holiday loan
Holidays are typically joyful times, but they can also be expensive. There are gifts to buy, festivities to attend and a host of other holiday happenings that can add up and create stress.
According to a 2019 LendingTree survey, 61% of Americans reported they were dreading the December holidays because of the associated costs. For gifts alone, a typical consumer expected to spend $602.65, and that number jumped to $850.38 if they had children under 18. On top of that, there’s often the cost of travel, parties, decorations and more that people rack up in the name of happy holidays. To help ease some of that stress and cover holidays costs, some consumers turn to holiday loans.
Ideally, you should save up for these expenses ahead of time, but when that’s not possible or you don’t want to dip into savings, holiday loans could bridge the gap. As with any loan, though, you want to make sure you don’t borrow more than you can repay. Unfortunately, far too many people do — 1 in 5 survey respondents were still paying off debt from the previous year’s holiday season.
11. Home improvement loan
For most people, your home is your largest asset, so you want to keep it in good working order and as updated as possible to protect your return on investment. Home improvements and repairs can be pricey though, which is why some homeowners seek out home improvement loans.
Take a new roof, for example. While prices vary widely based on the size of your home, type of roof and where you live, the national average rings in at $6,626, according to HomeAdvisor, a marketplace for home improvement and maintenance services — but not everyone has that kind of cash sitting around.
Your typical home improvement loan is unsecured and, as long as you have good credit, can be easy to get. However, if you’re more comfortable with a secured loan, or want to minimize interest charges, a home equity loan could be a more affordable option.
12. Medical loan
Medical expenses can quickly add up, and if you’re unable to pay, you may consider a medical loan to cover them or to take care of living expenses while you recover.
A word of caution about medical loans, however: In many cases, medical providers will provide payment plans with more attractive terms than medical loans, such as no-interest plans. They also may be willing to negotiate when it comes to price. In any case, it’s a good idea to do some investigating before you take out a medical loan to make sure it’s the best option possible (plus, you should also note that you may also have to pay an origination fee for a medical loan).
13. Vacation loan
A vacation loan may be just what you need to help you escape the daily grind and get away, while putting off paying for it until another day. But while the memories you make may be priceless, repaying a vacation with interest can be pricey, depending on your loan terms. In general, it’s wiser to save ahead for vacation costs.
You might choose a vacation or travel loan, however, if you’d prefer to hold onto savings for emergency costs or if you’re attending a special event like a wedding on short notice.
14. Wedding loan
The national average wedding cost in a pandemic-affected 2020 was $19,000, a steep drop-off from recent years according to wedding planning website The Knot. For couples who are unable to pay for these still significant wedding costs out of pocket, a wedding loan can be one financing option. Similarly, you can also find honeymoon loans.
One downside to a wedding loan, however, is the fact that personal loans are for fixed amounts. If you borrow too little, for example, you’ll have to take out another loan or charge a credit card to cover additional costs. For that reason, a personal line of credit or credit card could be a more practical financing option, as you can borrow on a rolling basis.
15. Recreation vehicle and boat loans
Whether you’re seeking a motor home or a motor boat, you might need help financing it. Personal loan lenders typically allow you to borrow for this purpose. Just be sure to compare apples-to-apples APRs as you shop around among lenders and RV and boat sellers that may have their own in-house loan options.
Also, keep in mind that buying used RVs and boats on credit could be difficult or expensive. Lenders typically award lower interest rates on RV and boat loans when the vehicle being purchased is less than five years old.
Like with other personal loans, if your credit or cash-flow is suspect, consider budgeting yourself into a stronger borrowing position. The right RV loan will be available once your finances are ready.
16. Pool loan
Pool loans can help you fix up or improve your backyard playground. Top-notch personal loan lenders almost always lend for this borrowing purpose. You should also compare rates and terms with the local or national pool installation companies that offer financing options.
But before borrowing, take a step back to understand affordability. If you’re not confident you’d be able to afford repayment on a larger loan for that sparkling in-ground pool, for example, you might settle for an above-ground option. Also, account for swimming pool maintenance costs that can easily add up once your new pool is installed. Plugging away at a personal loan payment calculator can do this math for you.
17. Family loans
In some cases, you might decide to skip the bank, credit union or online lender and its interest rates by really keeping your finances under one roof. Borrowing a family loan from those closest to you could be the right choice, particularly if you need only a small amount of money and can easily repay it quickly.
Just keep in mind that mixing money with family relationships could do serious harm. That’s enough to scare off most of us: More than 3 in 10 Americans would rather go into debt than borrow from a loved one, according to a December 2020 survey by LendingTree.
Another alternative option is to borrow from existing accounts, such as a retirement account or life insurance policy. In the case of raiding a retirement account, don’t put your golden years in jeopardy. Weigh the pros and cons before proceeding.