It is very important to choose the right loan whenever you need to borrow money. The goal should be to find a cheap secure way to borrow money that wont jeopardize your financial future. On this site you can read about many of the most common types of loans and when you should consider getting each type of loan. Below you can read an introduction to some of the types of loans we write about.
With a mortgage loan, real property is used as collateral for the loan. In many countries around the world, a mortgage loan is the standard way of financing the purchase of real estate. Since the real estate is used as collateral, the lender can take possession of it if the borrower defaults on the loan. Mortgage loans are typically long-term loans, with a fixed interest rate or an adjustable interest rate.
A mortgage can usually only cover a part of the cost of a house. Usually between 80 – 90%. The rest, usually referred to as the down payment, you will have to come up with yourself. The best option is to save money so that you are able to pay the down payment using your own money. If you do not have any savings you will have to finance your down payment another way. There are several different options available to you.
You should always start by investigating if there are any government down payment assistance programs available that you are eligible for. If there is than that is the best alternative. If not you will have to start looking for a bank that offer a down payment loan service. If you borrow your down payment you will have to pay a higher interest rate on this loan than what you pay on your mortgage. The best way to find a down payment loan is the visit a website that specialize in helping people in your area find the right loans. Examples of god sites focusing on different markets include moneysupermarket.com, lånatillkontantinsats.se and moneysavingexpert.com.
A charge card offers short-term unsecured debt. You use the charge card when purchasing products and services. You receive a bill where all the charges are listed, and you need to pay it in full. Most charge card companies send out monthly bills.
A credit card is similar to a charge card, but you are not obliged to pay your monthly bill in full. As long you make the minimal monthly payment, you are not defaulting on your credit.
Typically, the credit card company will not charge you any interest if you use your credit card as you would a charge card, i.e. pay the bill in full every month. If you do not pay the bill in full however, you will be charged interest on the remaining principal.
If you fail to make even the minimal monthly payment, you will incur late fees and the credit card company may increase the interest rate for the loan.
Checking account credit
A checking account is a deposit account with a bank or other financial institution. It is intended as a transactional account rather than a long-term savings account. Most banks and financial institutions will offer you a credit linked to your checking account.
A traditional payday loan is a short-term loan that must be paid back in full, including interest and fees, on you next payday. Payday loans are typically used by borrowers without access to better types of credits, e.g. charge cards or checking account credit. Payday loans tend to come with a big fixed-fee.
The SMS loan is similar to a payday loan in being a small short-term loan typically obtained by borrowers without access to better credit options. You use a text message (SMS) sent from a mobile phone to apply for the loan and will receive confirmation about approval / denial directly in a text message. If you are approved for the loan, the money will quickly be deposited into your bank account. The loan is to be paid back in full, including interest and fees, within a few weeks.
A pawnbroker offers loans where personal property is used as collateral. Due to the presence of collateral, pawning tends to give the borrower better conditions than a payday loan or SMS loan. If you default on your loan to the pawnbroker, your item will be sold to cover your loan. You can often prevent the item from being sold by continually paying interest on your loan, until you can pay back the loan in full. In most parts of the world, pawnbrokers do not report defaulted loans to credit report companies or similar, so defaulting on a pawnshop loan will not hurt your credit rating.
A car loan can either be a loan obtained to purchase a car, or a loan where the car is simply collateral for a loan. The second type of loan is very similar to pawning, and tend to come with a considerably higher interest rate than the first type of loan.
Car loans obtained to purchase a car are often offered through car dealerships to facilitate the sale of cars. They are long-term loans that are payed back in monthly installments. The car is used as collateral. Normally, the card dealership works with a third party lender and only acts as an intermediary that can help out with loan application forms etc. It is also common for banks and credit unions to offer their customers car loans of this type. Alternatives to car loans includes car leasing, hire purchase and personal contract purchase.
Just as with car loans, a boat loan can be a loan obtained to purchase a boat or a loan where the boat is just collateral for the loan. If you wish to borrow money to purchase a boat, several options are available, such as dealer financing, manufacturer financing programs or a boat loan from a bank / credit union.
United States: FHA insured mortgage loan
In the United States, the Federal Housing Administration (FHA) offers mortgage insurance to encourage lenders to give house mortgage loans to low-income borrowers. The mortgage insurance protects the lender against defaults. The aim of this FHA program is to make it possible for low-income individuals and families to become house owners even though they do not have the financial resources for a conventional down payment and/or private mortgage insurance. The program was launched during the Great Depression of the 1930’s.
United States: VA loan
In the United States, the Department of Veteran Affairs (VA) have programs to aid United States military veterans that wish to become homeowners or make improvements to their home. With a VA loan, a qualifying veteran or surviving spouse may, if certain requirements are fulfilled, receive up to 103.3% financing. A VA loan is typically offered by a third party lender but insured by the Department of Veteran Affairs. VA can however also make direct loans.