Did you know that only 39% of Americans say they have enough money saved to be able to afford a $1,000 emergency expense? If you’re in a situation where you need money fast, you may be able to get a loan to help ease the burden.
But what are the different types of loan options available to you? We’re glad you asked.
Keep reading to learn about the most common types of loans and what you can use them for so you know your options the next time you need extra funds.
1. Home Loan
Also known as a mortgage, a home loan allows you to buy a house without having to pay the full amount upfront. This allows you to live in the home before it’s paid off, although you won’t technically own it until you make that final payment. There are even some home loans for those in specific professionals, like the medical field. Check out this guide for doctors for more information.
Unless you’ve done a lot of preparing to save up, you’ll almost always need a home loan to purchase a house. You can get a home loan with different lengths, but the most common are 15-year and 30-year terms.
A 30-year mortgage will give you a lower monthly payment, helping to make homeownership more affordable, so keep that in mind when house hunting.
2. Auto Loan
Similar to a home loan, an auto loan makes it easier to purchase a new or used car. Again, getting a loan allows you to use the car while you’re paying it off, but if you miss out on payments, the lender can repossess the car.
Since cars tend to be much cheaper than houses, the length of the loan is usually much shorter than that of a home loan. Typically, your loan term will be between 60 and 72 months, but some auto loans are as short as 24 months.
You can also get similar loans to help you purchase other modes of transportation like airplanes or boats as well.
3. Personal Loan
Unlike home and auto loans, a personal loan doesn’t have a specific purpose. You can use the money from a personal loan for virtually any purpose, as long as it’s not illegal. In some cases, the loan terms will restrict the use of the money on specific things, but you can get clarity on the terms during the approval process.
You might consider getting a personal loan for any of the following purchases:
- Wedding or similar life event
- Medical or dental bills
- Debt consolidation programs
You also have the freedom to choose from different loan lengths, with some options going up to 84 months or more.
4. Student Loan
These days, having a college degree is a requirement for almost all job fields. However, tuition prices are on the rise and college may seem out of your budget. In that case, you can take out a student loan to cover all of your education costs.
This includes not only tuition costs but also housing fees, textbooks, transportation, food, and more. Best of all, most student loans don’t require payments until after you leave school, which means you don’t have to worry about the payments until you’re done with your education.
Once your payments are due, the length of the loan is usually 10 years, but it may be longer depending on your specific terms.
5. Payday Loan
If you need money fast, you may be interested in a payday loan, which is a short-term option based on your income. Then, once you receive your next paycheck, you’ll need to pay back the loan quickly.
Payday loans can be dangerous because they’re often very high-interest options, so make sure you have a clear understanding of the terms before deciding to take out this type of loan. Keep in mind that you will likely need to provide a pay stub showing your income if you do decide to apply for one.
6. Home Equity Loan
If you own a home, then you have a versatile loan option available to you in the form of a home equity loan. In this case, the amount you can borrow depends on the appraised value of your home. Your lender will allow you to borrow up to a certain percentage of your home’s value, minus the amount you still owe.
However, there are other requirements you must also meet. Each lender’s requirements vary, but generally speaking, you must meet a credit score and debt-to-income ratio requirement in order to take out a home equity loan. Once approved, you can use the loan like you would a personal loan, on just about anything.
7. SBA Loan
If you’re a business owner, you may need a loan to be able to keep your business afloat. In that case, you can look into a Small Business Administration (SBA) loan.
While the SBA itself doesn’t provide loans, it partially guarantees the loans that banks make to small businesses, which helps to eliminate risk for the lenders.
SBA loans are ideal for small businesses that can’t obtain a traditional bank loan, but they still have strict requirements to qualify. You’ll need to prove that you’ve been in business for a few years, have a good credit history, and have proof of strong business financials. The length of the loan will depend on the specific terms, but it can be up to 25 years.
Explore the Types of Loan Options Available to You
After reading through this guide, you have a better idea of the different types of loan options you can explore should you find yourself in a situation where you need extra funds. When looking for a loan, be sure to talk to multiple lenders to find the best possible terms.
Looking for more like this? Be sure to browse through our other articles before you go!