Different Types of Loans and Their Terms

December 08, 2022 at 12:00 PM EST

Depending on who you ask, there are anywhere from four to twenty-four different types of loans out there. We’ll go with the lower number because consumer borrowing typically falls into four main categories. You can put your loan payment calculator away for now because you won’t be doing any math here. The list below is for information purposes only.

Personal loans

Despite how lenders often advertise them, personal loans come in two varieties: secured and unsecured. Unsecured loans are more common. Lenders approve them based on credit score and credit history without requiring collateral (security) to guarantee the loan. As you might have guessed by the name, secured loans are secured by collateral.

The terms of a personal loan are simple. The borrower takes a certain amount of money from the lender and then pays it back in regular monthly installment payments. The payments cover a percentage of the principal owed and whatever interest and fees (APR) the lender charges. Personal loan term lengths can be anywhere from one to several years.

Auto loans

Auto loans are secured loans. If the borrower defaults, the lender takes possession of the automobile and auctions it off to pay the debt. They hold the title to the vehicle as collateral until the full balance of the auto loan is paid off. Like personal loans, that’s done by making equal installment payments every month that include interest and fees.

The same system used with auto loans is also seen with boats, motorcycles, and RVs. On some lists, these are profiled as separate types of loans. They are not. A vehicle loan is a vehicle loan, regardless of how many wheels it has or where it travels. Terms for vehicle loans are typically one to six years, depending on the year of the vehicle and the borrower’s credit score.

Student loans

Student loans are very different from personal loans and auto loans. Most students take out federal student loans that don’t need to get paid back until after graduation. Graduate students often choose private student loans because there’s a cap on federal lending. Monthly payments on private loans typically start immediately while the student is still in school.

There are two types of Federal student loans: subsidized and unsubsidized. With the subsidized version, the Federal government pays the interest on the loan while the student is still in school. Unsubsidized loans don’t provide that, but they are subject to loan forgiveness when the government offers it, which has happened frequently in recent years.

Mortgages

Mortgages have been in the news a lot in the past year because the Federal Reserve Bank has been raising interest rates. A mortgage is a loan to buy a home, which can cost several hundred thousand dollars. It’s a secured loan because the bank will foreclose on the house if the borrower doesn’t pay. It’s also a long-term loan of up to thirty years.

Most mortgages in recent years have been fixed-rate mortgages. That means that the interest rate is fixed when the mortgage is approved, so home buyers should take advantage of low rates when available. The three main types of mortgages are conventional, FHA, and VA. The latter is available to veterans only.

The Bottom Line

We could break these down into sub-categories and come up with one of those lists of 20+ different loan types, but that would be a waste of space. There are four primary loan categories for consumers: personal loans, auto loans, student loans, and mortgages. You’ll likely have some experience with all of them during your lifetime.

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