There are various types of loans that are used for different purposes. Each carries different terms and regulations and changes different fees and interest rates. Understanding each can help you determine what type of lender to contact for your specific needs. Here is a brief description of each:
There are a variety of quick loans available to borrowers today, with the most popular being payday loans, short term loans and credit card advances. These loans will have very high interest rates and fast pay off periods, but they can be obtained the same day you apply. Because their lending criteria are low and in the case of a credit card advance (you have already more than likely qualified for one if you have a major credit card), they remain a very popular choice for borrowers.
Payday loans: Payday loans are as the name implies, tied to your paycheck. You borrow money with the agreement that you will repay the loan out of your guaranteed paycheck until the loan is paid off. These loans have a very low set of criteria for those working with stable jobs, but are very expensive and carry heavy fees.
Short Term Loans: Short term loans are a newer version of payday loans in which the loan is repaid in installments rather than all at once. The terms and requirements are the same, so you must have a responsible job, a checking account and be legally able to turn over the rights to your pay to the lender.
Credit Card advances: Credit card advances are loans that are available to the majority of credit card holders. They are easy to access and can be taken via an ATM in nearly any country. Cardholders rarely look at these advances as loans and often find themselves borrowing to their limit and paying high interest rates for long periods as they pay them off.
Longer Term Loans
There are two types of long terms loans that people access. They are open-end and closed-end credit.
Open-end Loans: Open-end loans are also known as revolving credit. It defines the type of credit that can be used repeatedly for purchases. The borrower will make payments to pay back the borrowed amount monthly with a goal of paying off the entire amount. However, paying the full amount due every month is not required.
As the borrower pays off the credit, the amount of credit paid off becomes available to the borrower again. There are several types of open-end credit that are common with the most popular being credit cards, home equity loans and home equity lines of credit.
Closed-end loans or credit are used to finance a specific purpose or project, for a pre-determined period of time. Consumers are required to follow a specific payment schedule of payment installments, when they take out these loans, so they are also called installment loans. These payments include both the principal borrowed and any interest due. Popular loans of this type include; mortgages, car loans, appliance loans and student loans.