Loans
Secured vs. Unsecured Loans
There are also several different types of personal loans. There are two main types of loans: secured loans and unsecured loans. Secured loans require collateral. Some examples of secured loans include home mortgages, home equity loans, home equity lines of credit and vehicle loans. Secured loans typically have lower interest rates, but the lender is able to take possession of the items used as collateral if the loan is not paid. Unsecured loans do not require collateral. These loans typically involve higher interest rates because there is much higher risk involved for the lenders. If someone does not pay an unsecured loan, there is no collateral for the lender to collect.
Home Loans
There are many types of home loans, also called mortgages. The most common type of home loan is called a "Conventional Mortgage." Conventional Mortgages require at least a 10% down payment and a good credit score. The FHA Mortgage is often considered to be a loan program for first time home buyers, but it is actually available to others as well. The required down payment is typically 3.5% and is more accepting of lower credit scores. The VA Loan is a loan program that is only available to veterans. This loan requires no down payment. The USDA Rural Housing Loan program was created to encourage people to live in rural areas. This loan requires no down payment, but it can only be used in designated areas that the USDA considers "rural." Most of these mortgages have a consistent interest rate, but that is not always the case! Adjustable Rate Mortgages entice borrows with low interest rates, but those rates increase after a few years.
Auto Loans
Auto loans can either be secured or unsecured. If the borrower wants to have a secured car loan, the lender will put a lien on an item that is owned by the borrower, typically that lien is on another car owned by the borrow or their home. Unsecured car loans do not allow the lender to repossess items if the loan is not repaid. As a result, unsecured auto loans have a much higher interest rate. There are also different ways that auto loan lenders handle interest. Some loans utilize pre-computed interest rates. With this type of loan, borrowers cannot save money by paying off their loans early because they have already agreed to pay a set amount of interest on the loan. Other loans utilize simple interest. Simple interest loans calculate interest on a preset periodic schedule, such as daily or weekly. During each period, the interest is calculated based on the amount left to pay on the principal. Early payments allow borrowers to pay off simple interest loans faster while paying less in interest over the life of the loan.Auto loans are one of the most common type of loans. To solve this clue, you'll have to do some math.
