Different Types of Loans & Their Benefits

Posted January 2, 2023 by in Lifestyle

There are numerous reasons why you might currently be looking for a bit of extra cash, from a home improvement project to paying off an existing debt or simply boosting your money for a birthday or the Christmas holidays.

To help you decide which type of loan is the right one for you, continue reading to discover a simple guide to the different types of loans and their benefits. 

Auto Loans 

One of the most popular types of loans in the United States, as well as the rest of the Western world, is that of an auto loan, which relates to buying a new, or even secondhand, car. 

Auto loans are always secured loans and usually hold a repayment term of between three and eight years, and what is more, the collateral for an auto loan is almost always the vehicle itself. Auto loans are available from a wide range of different suppliers, from online lenders and car dealerships to banks and credit unions. 

FHA Loans

Another useful and popular type of loan is that of a Federal Housing Administration (FDA) loan, which is a mortgage on your home that is issued by an approved lender, such as your bank and then insured by the FHA.

When asking yourself is FHA loan better than conventional loan, it is important to assess the main attributes of an FHA and compare these benefits to your individual needs and personal circumstances. By far the main advantage of choosing an FHA loan is the impressively low initial down payment. 

Credit Builder Loans 

Credit builder loans are always short-term loans, which are usually just a couple of thousand pounds at the most and are specifically targeted towards people who need to build their credit rating quickly. 

These types of loans can be supplied by a significant number of vendors, from CDFIs (Community Development Financial Institutions) and credit unions to community banks and even lending circles. 

To ensure you are taking out a credit builder loan from an established and reputable vendor and that every box is ticked, you will be required to supply the following personal information:

  • Tax returns for the self-employed
  • Savings account balances
  • Current account balances
  • Employment information
  • Professional and personal references

Personal Loans

The final main type of loan available to most people who have a steady income, or at least can prove that they can make repayments on time and regularly, is that of a personal loan. 

Personal loans can be used for a huge variety of different purposes and can be taken out for an emergency, for example in the case of needing urgent home repairs or medical treatment, or else if you are planning an international vacation or even your wedding

There is a wide plethora of benefits to a personal loan, including the fact that you will receive the loan in one lump sum, there will usually be no collateral required, and they usually have fast-funding times, which is a major bonus.