Credit Types & Loan Types
By learning about different credit types, you can make a more informed decision about your financial future.
A secured loan is one in which you guarantee your loan with something of value called collateral, such as a car or home. Since a lender can take your collateral for non-payment, this type of loan may offer lower rates.
With an unsecured loan, your promise and your signature on the loan note are all the lender has to ensure you will repay your debt. Unsecured loans may have higher interest rates than secured loans
With a credit card, you are given a maximum allowable balance and each month you can make purchases up to that amount. Choose to pay it off in full each month or make minimum payments as set forth by the creditor. If you only make minimum payments, your creditor will add interest to your balance each month, which can significantly increase what you owe. Interest rates will vary based on the card you choose.
First Mortgage Loan:
The first time a mortgage is taken out on a property, it is called the First Mortgage. A mortgage is always a secured loan, with the property as the collateral.
Second Mortgage/Home Equity Loan:
With a second mortgage, you can take out a loan on the difference between what your home is worth and what you owe on a first mortgage. The difference is often called equity. Use the money you receive from a home equity loan to pay off existing loans, consolidate debt or make home improvements, just to name a few.
Debt Consolidation Loan:
Debt consolidation loans are generally used to consolidate multiple bills such as credit card balances into one loan. By consolidating your debt into one loan, you may receive a lower interest rate and a lower overall monthly payment amount, making it easier to manage your budget.
Installment loans are often used for a large purchase such as a car, furniture or major appliance. An installment loan is repaid over a set period of time by making monthly installments or payments. The term of an installment loan is generally between 1-5 years.