There are many different types of loans available. You should decide which one to apply for based on your reasons for getting the loan. For example, it will be wiser to go for a mortgage as opposed to a personal loan if you wish to buy a new home. The main types of loans include conforming or non-conforming loans, secured or unsecured loans, and open-ended or close-ended loans.
Common types of loans
Conforming and non-conforming
Conforming loans refers to those offered under specified guidelines. A good example of a guideline is the maximum amount of money that you can loan. The set limit can vary depending on a variety of factors. For a home loan, for example, the limit may be higher if you buy a home in a high-income area as opposed to in a general income location. Credit score, loan to value ratio, and debt to income ratio are other good examples of guidelines that can be set.
The non-conforming loans are simply those that are issued without following a set of specified guidelines or qualifications. They come in handy for those who require loan amounts that are larger than the conforming loan limits.
Secured and unsecured loans
Secured loans refer to those which require you to put a collateral for the loan. In other words, you have to leverage something valuable that you own to get the loan. In case you default on the loan, ownership of the property you set as collateral will be transferred to the lender. The value of the property has to be more than or equal to the loan amount, including the interests and any other applicable fees.
Unsecured loans are simply the loans which you can get without having any collateral. Most of them are given on the basis of creditworthiness and existing income. There are some lenders, who do not even need to check your credit history, meaning that you can access first quality finance bad credit loans if you meet other qualifications.
Open-ended and closed-ended loans
The open-ended loans refer to those which you can borrow over and over, even if you have not repaid the previous debt. However, they usually have a maximum limit to the total amount that you can borrow. Credit cards are a good example of the open-ended loans.
Closed-ended loans, on the other hand, are those which can be borrowed only once. To borrow again, you will have to apply for a new loan which will be subjected to approval independently. Mortgages are a good example of the closed-ended loans.