There are a lot of different types of loans out there. However, do you know what these loans actually are. You will need to understanding the loan when you are planning to borrow. The followings will give you some basic ideas on these different types of loads.
Secured Loans
Secure loan is a kind of loan which requires you to have some assets in order to get the loan. For example, in the case of home equity loan, you will use your house as the asset to get the loan. If you fail to repay, the lender can take your asset as compensation.
Unsecured Loans
On the other hand, there is also another kind of loan called unsecured loan. In this case you will not need to have any asset in order to get the loan. And the lender will decide whether to lend you based on various factors such as your income and credit report. One disadvantage of unsecured loans compared to secured loans is that the interest rate of the former is usually higher.
Fixed Rate Loans
If the interest is fixed during the whole period of repaying the loan, then it is a fixed rate loan. To this end you may probably understand that you will be able to pay less interest if the interest rate increases during the period of repaying. However, you will need to pay more interest if the interest rate decreases during the period of the loan!
Adjustable Rate Loans
Contrary to fixed rate loans, an adjustable rate loan is that the interest rate will change with the Prime Rate. In this case, the advantage is that you will need to pay less interest when the Prime Rate decreases. On the contrary, you will need to pay more interest when the Prime Rate increases.
Revolving Loans
Under the notion of revolving loan, you can borrow continuously until the amount you have borrowed reaches your credit limit. Usually you will need to at least settle a minimum monthly payment in the case of revolving loan. Other than that, you can settle all the loans whenever you have enough money to do so. The debt from credit cards can be treated as a kind of revolving loan.
Installment Loans
In the case of revolving loans, there is no fixed schedule for repaying. However, in the case of installment loans, the repayment schedule will usually be fixed when you get the loan.
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