Types of Loans
Even though loans have many things in common, there are different types linked to specific borrowing needs. For instance, the amount of principal you can borrow, the loan's terms, and the cost of borrowing all vary based on the type of loan you take.
Here's a brief description of three types of loans you may take at some point in your life:
Student loans allow college students or their parents to borrow money to help pay the cost of post-secondary education. Student loans are available directly from the federal government, from individual colleges and universities, and from private lenders, such as banks, credit unions, and loan companies. Since July 2010, all new federal student loans are disbursed through the William D. Ford Direct Loan program. Learn more about borrowing for your education.
Car loans allow you to borrow to pay for a new or used car. In most cases, the maximum term is five years and the most you can borrow is the cost of the car minus the percentage of the cost that the lender requires you to pay in cash. You can arrange a car loan with a bank, credit union, or through the credit arm of the car dealer. You must demonstrate you are creditworthy to qualify for a car loan or pay a higher rate to borrow than other buyers.
Mortgage loans allow homebuyers to borrow most of the cost of a home provided they can pay the remaining balance in cash. Many lenders require that this down payment be 10% to 20% of the home's selling price. Because homes are often the most expensive purchases that people make, most do not have enough money saved to pay the full cost of purchasing a home all at once. You must demonstrate you are creditworthy to qualify for a mortgage loan.