What are the different types of loans?


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There are seven types of loans:
  • Open ended loans, which that you can borrow over and over, like a credit card or lines of credit.
  • Closed ended loans, which are one-time loans that cannot be borrowed again once repaid unless you reapply for another one.
  • Secured loans, which  rely on assets as collateral for the loan. Failure to pay the loan means you lose the asset.
  • Unsecured loans, which don’t require collateral, and rely solely on your credit history and income as qualifiers.
  • Conventional loans, which are not insured by a government agency like the FHA. Conforming conventional loans follow guidelines set by Fannie Mae and Freddie Mac, while non-conforming loans do not.
  • Payday loans, which are short-term and borrowed against your next paycheck as a guarantee for the loan. Payday loans are bad deals for the borrower.
  • Advance fee loans require the borrower to pay a fee in advance of the loan and are typically one of the loans most connected with scams. Avoid payday and advance fee loans at all costs.
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I worked at a bank and didn't realize how many types of loans there were until I started that job. Customers ask about auto loans (Did you know they are different for new and used cars?), personal loans to pay off their credit card and other debts, and of course, mortgages for their home. We also handle small business loans, and I found out people can consolidate their student loans, too.

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Open-ended loans are options like credit cards that let you borrow repeatedly. Closed-ended loans like mortgage, auto and student loans let you borrow once until you repay them. Open-ended loans also give you a line of credit until you hit the credit limit, but closed-ended don't. You can get secured and unsecured loans, too. Secured ones require collateral, which a lender can take if you don't pay, while unsecured don't....Read More