Different Kinds of Loans

loans

car loan

Many different kinds of loans can be made when looking to borrow money for a particular purpose. It is important to know what the alternatives are before a decision is made on the prospective loan.

Secured loans

mortgage loan

Secured loans are backed by an asset in the form of collateral to ensure the security of the loan. In case the borrower defaults on the loan, the creditor can take possession of this asset to make up for the loan default. The rate of interest for these loans will usually be lower when compared to those loans that are unsecured.

 

personal loan

Unsecured loans

Unsecured loans are those that are not backed by an asset in the form of collateral. These loans usually charge higher rates of interest than secured loans. In case of default on this kind of loan, legal action can be taken against the defaulter in the form of lawsuits.





 

home loan

Open ended loans

These are the loans that you can make repeatedly and the most common form of open ended loans is credit cards and lines of credit. These loans work in a similar fashion for the borrower has a credit limit against which purchases can be made. Every time a purchase is made, the credit limit decreases. When you make the payments, the limit increases and you can continue to use it in the same way you did before.

money loans

Close ended loans

Once these loans are returned, you cannot borrow from them anymore. The most common kinds of closed ended loans are personal loans, mortgage loans and auto loans. If more money is needed by the borrower, then he/she will have to apply for the loan again i.e. another loan. Once the payment on the loan has been made, the loan balance will go to zero.