Wouldn’t life be great if you always had all the cash you needed on hand? Unless you’re one of the lucky few, that isn’t the case. From large purchases to unexpected expenses, there are many reasons you might need extra money.
Where do you begin with your loan shopping, though? There are many different types of bank loans for different purposes. Find out which of these best fits your needs.
A personal loan is as general as it gets. It’s a loan to you from the bank for any purpose you want.
Some personal loans are secured (meaning you provide the bank with one or more of your assets as collateral). Others are unsecured so they don’t require any collateral. Your options may depend on your credit and other factors, but unsecured personal loans tend to have higher interest rates.
Mortgages or Home Loans
A mortgage or a home loan is specifically for purchasing a home. The house is the bank’s collateral, so the bank has to approve you as a lender as well as the home you’re purchasing.
Qualifying for a mortgage can be difficult because the dollar amount is so high. Still, it’s the ideal option if you want to buy a home.
As you might expect, an auto loan is a loan for you to purchase a vehicle. The vehicle serves as collateral for the loan, so the bank holds the title until you pay off the balance.
Home Equity Loans
Every dollar you pay off on your mortgage turns into equity in your home. For example, if you’ve paid off $20,000 of your mortgage, you have $20,000 in equity in the home.
A home equity loan is a loan against that equity. In this example, if your lender approves, you could borrow up to $20,000.
A business loan is meant exclusively to building or forming a business. You can use a business loan to fund the startup costs for your business.
An established business can also use a business loan to make new investments and purchases, solve a temporary cash-flow problem, or otherwise fund their business.
It’s common to confuse title loans with auto loans, but they’re very different types of loans.
A title loan is only an option if you already have a vehicle that you own in full. The bank holds the title to your vehicle as collateral for a new loan. You can use that loan for any type of expense, though.
A payday loan is a short-term loan meant for smaller expenses. The maximum is usually a few hundred dollars, though it depends on the lender.
Payday loans get their name because the full balance of the loan, including interest and fees, is due on your next payday.
Choosing Among Different Types of Bank Loans
As you explore the different types of bank loans, you’ll see that there’s no shortage of options. Finding the best loan for you will come down to the purpose of the loan, the potential collateral you have, your pay-off timeline, and other factors.
For more top financial tips and the information, you can check out more articles on our blog.