Many if not all the events of your life could use a little more money to see them through, right? Some though have bigger budgets than you could facilitate and could use some more cash. A friend may chip in but mostly taking a loan to meet the need is mostly the suitable option. But before getting a loan for your wedding party, vacation, home renovation, holiday or some other need, it would be good to understand the type of loans which exist so that you can make a better decision. Here is the list:
Closed-ended and Open-ended Types
Open-ended loans are the kind you can take again and again after repaying the formerly taken amount. For instance, this system is used with credit cards, where after repaying the credit, you can use your card to make purchases again. Credit is always available as far as you borrow and pay under the agreed terms.
Closed loans, on the other hand, cannot be renewed once you have paid the amount you had borrowed. You have to reapply for another loan if you need the money or if the credit limit available is not enough to sort your need.
Unsecured and Secured Types
Unsecured loans are loans given based on your credit history and income. You don’t require collateral to get one. In case of default, the lenders ensure they have exhausted collecting options and then use debt collectors after which they file a lawsuit against you.
Secured loans demand the use of collateral, for instance, title deeds. The collateral is usually at a higher market price than the loan. With such loans, defaulting places the lender in a position to sell the collateral and repay the loan.
Conventional Types
Call them mortgage loans. This loans are granted by mortgage lenders and do not conform to government agencies or housing administrations. They can either be conforming or non-conforming. These loans are typically higher than government-backed mortgages. They also conform to the dollar limit set in the housing finance agencies.
In this case, they cannot exceed some amounts such that they may not suit some big loans like the non-conforming jumbo loans. These loans do not conform to the criteria for issuing loans due to their huge value. Real estate and commercial loans tend to fall into this categories as they are bigger and address more than required in bank lending criteria.
Conforming and Non-conforming
Conforming loans are such which are issued based on the Finnie Mae or the Freddie Mac guidelines. They conform to such guidelines like giving a loan amount based on the location of the house you stay in, loan versus value, your credit history, dollar limits and your income to debt ratios.
Loans are good to facilitate the events of our lives. Similarly, care should be taken to avoid bad loans as they can bring down what we want to grow.