While it is always best to save the money and resources necessary to fund a large purchase, this rarely happens with most consumers. Saving significant amounts of cash for large purchases is virtually impossible for many consumers. The reality is that most consumers finance large purchases with loans. Unexpected price tags for automobiles, college education, homes, medical bills, or varying emergencies require individuals to take out loans to finance these major expenditures. There are more than a dozen loan types that consumers can take out for these large expenses.
The broadest type of loan category is personal loans. The repayment terms range from 24 to 84 months. These loan types can be secured or unsecured. Personal loans can be used for almost anything except college education or illegal activities. The most common usages for personal loans are debt consolidation, emergencies, home renovations, major tech purchases, medical treatments, relocation, vacations, or weddings.
Auto loans are secured loans that a consumer can use to buy a vehicle with typical repayment terms between three to seven years. Boat loans are used to finance boat purchases, and RV (“Recreational Vehicle”) loans are used to finance the purchase of RVs. Boat or RV loans can be either secured or unsecured.
To streamline the repayment of multiple debts, consumers take out debt consolidation loans to pay off multiple debts but having only one monthly loan payment.
Home equity loans, or second mortgages, represent the secured equity in a home. The loan usage for home equity loans are determined by the borrower but must be disclosed to the lender. The repayment terms for these loans are five (5) to 30 years.
The purchase of a home is financed with a mortgage loan with typical terms of 10, 15, 20, or 30 years. Mortgage loans are secured by the home.
Payday loans are short-term loans, usually lasting just until the consumer’s next paycheck.
Student loans are meant to pay for tuition, fees and living expenses at accredited schools.
Title loans are secured loans where the consumer pledges the title for an owned vehicle—such as a car, RV, or truck—as collateral.
Prior to executing a loan, get a comprehensive understanding of the rate, terms, and conditions.
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Nicole Michelle
Finance and Money Wiz
November 12, 2022
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