A loan is a financial agreement in which a lender provides a borrower with a sum of money in exchange for the borrower’s promise to repay the loan, plus interest, over a predetermined period of time. There are several major types of loans.
Secured loans: These loans are secured by collateral, which is an asset that the borrower puts up as security for the loan. If the borrower defaults on the loan, the lender can seize the collateral to repay the debt. Examples of secured loans include mortgages, car loans, and boat loans.
Unsecured loans: These loans are not secured by collateral and are based on the borrower’s creditworthiness. If the borrower defaults on the loan, the lender cannot seize any assets to repay the debt. Examples of unsecured loans include credit card debt and personal loans.
Fixed-rate loans: These loans have an interest rate that remains the same throughout the term of the loan. This makes it easy to budget for your loan payments, as they will not change over time.
Adjustable-rate loans: These loans have an interest rate that can change over time. The rate is typically fixed for a certain number of years and then adjusts according to a predetermined index. This means that your loan payments could go up or down over time.
Conventional loans: These loans are not insured or guaranteed by the government and are available from traditional lenders such as banks, credit unions, and mortgage companies.
Government-backed loans: These loans are insured or guaranteed by the government and are available from government agencies or government-approved lenders. Examples include FHA loans, VA loans, and USDA loans.