16 Types of Loans to Help You Make Necessary Purchases

Saving money before making a significant purchase is always a good idea. However, in practice, this isn't always doable. This is especially true for major purchases such as a college degree, a car, or a home, as well as unforeseen 

expenses such as medical bills.

You can take out a loan if you are unable to save money in advance. However, you'll need to know what form of loan to look for because different loans are available for different purchases.

Here are 16 different forms of loans that can assist you in making life's vital purchases:

Personal Loans (No. 1)

Personal loans are the most common sort of loan, with payback durations ranging from 24 to 84 months. Except for a college degree or illicit activities, they can be used for almost anything. Personal loans are frequently used for the following purposes:

  1. Vacations
  2. Weddings
  3. Emergencies
  4. Medical treatment
  5. Home renovations
  6. Debt consolidation
  7. Relocating to a new city
  8. Computers or other pricey electronics

There are two types of personal loans: secured and unsecured. Secured loans are backed by collateral, such as a savings account or a vehicle, that a lender can seize if you don't pay back the entire loan amount.

Unsecured loans, on the other hand, do not require any collateral and are only backed by your signature, therefore the name signature loans. Because the lender takes on more risk, unsecured loans are more expensive and require stronger credit.

Personal loans are simple to obtain and may usually be done online through a bank, credit union, or online lender. Borrowers with good credit can get the best personal loans, which have low interest rates and flexible repayment alternatives.

2. Automobile Loans

Auto loans are secured loans that can be used to purchase a vehicle and have repayment lengths ranging from three to seven years. The automobile serves as the loan's collateral in this situation. If you don't pay, your automobile will be repossessed by the lender.

Credit unions, banks, online lenders, and even automobile dealerships are common sources of auto loans. Some vehicle dealerships include a financing section that can assist you in obtaining the best loan possible from one of their partner lenders. Others work as "buy-here-pay-here" lenders, where you get a loan from the dealership itself. However, these are usually far more expensive.

3. Student Loans

Tuition, fees, and living expenses at accredited colleges are covered by student loans. This means you won't be able to utilize student loans to pay for some sorts of education, like coding bootcamps or informal classes.

Federal and private student loans are the two types of loans available. Fill out the Free Application for Federal Student Assistance (FAFSA) and work with your school's financial aid department to apply for federal student loans. Federal student loans have greater safeguards and advantages than private student loans, but they have slightly higher interest rates. Private student loans have less safeguards and advantages, but if you have good credit, you may be able to get better rates.

4. Mortgage Loans

Mortgages are loans that help you fund the purchase of a property, and there are many different sorts of mortgages. Banks and credit unions are frequent mortgage lenders; however, if the loan is an eligible mortgage, they may sell it to a federally-sponsored entity such as Fannie Mae or Freddie Mac.

Certain categories of people can also take use of government-backed loan programs, such as:

  • USDA loans are available to low-income homebuyers in rural areas.
  • FHA loans are available to those with low to moderate incomes.
  • VA loans are available to active-duty military personnel and veterans.

5. Home Equity Loans

You might be able to use a home equity loan, also known as a second mortgage, if you have equity in your property. The loan is secured by the equity you have in your home, which is the piece of your home that you own rather than the bank. You can usually borrow up to 85 percent of the equity in your property, which is paid out in a single sum and repaid over five to 30 years.

Simply subtract your mortgage balance from your home's assessed value to determine your equity. For instance, if your mortgage balance is $150,000 and your home is worth $250,000, your equity is $100,000. With $100,000 in equity and an 85 percent loan ceiling, you may potentially borrow up to $85,000 depending on your lender.

6. Credit-builder Loans

Credit-builder loans are tiny, short-term loans used to assist you improve your credit score. Unlike traditional loans, you don't need strong credit to qualify because they're aimed for persons with no or low credit. Credit-builder loans are often available from credit unions, community banks, Community Development Financial Institutions (CDFIs), lending circles, or online lenders.

You make predetermined monthly payments and receive the money back at the end of the loan term, rather than receiving the loan funds up front as you would with a traditional loan. Credit-building loans typically range from $300 to $3,000, with annual percentage rates (APRs) ranging from 6% to 16%.

Credit-builder loans, especially for young people, can be a very reasonable and safe method to begin building credit. You'll never have to worry about missing a payment if you set your payments up on auto-pay, and you'll be able to establish credit on auto-pilot.

7. Debt Consolidation Loans

Debt consolidation allows you to simplify your payments by taking out a new loan to pay off your existing debts, leaving you with only one monthly payment. A debt consolidation loan can aid you in two ways if you have high-interest debts like credit cards or a high-interest personal loan. For starters, you might be eligible for a lower monthly payment. Second, you might be eligible for cheaper interest rates, which can help you save money in the long run.

To receive a debt consolidation loan with a lower interest rate than your present loan or credit card, you must first shop around for a lower rate than your current loan or credit card. If your credit has improved since you took out your current loan or card, you're also more likely to qualify. If you qualify, your lender may pay your debts for you automatically, or you may have to do it yourself.

8. Payday Loans

Payday loans are a form of short-term loan that typically lasts until your next paycheck arrives. You don't need strong credit to qualify for these loans because they aren't based on credit. However, for a variety of reasons, these loans are frequently predatory.

For starters, they demand exorbitant loan fees that can reach 400 percent APR in some situations (a finance fee is not the same as an APR). Second, if you can't pay off your loan by your next payday, you can roll it over. It appears to be beneficial at first—until you realize that even additional fees are piled on, trapping many people in debt obligations that are often more than the amount borrowed.

9. Small Business Loans

Small business loans come in a variety of shapes and sizes, including SBA loans, working capital loans, term loans, and equipment loans. These loans assist small enterprises with up to 300 employees in funding their operations. Landscapers, hair salons, restaurants, and family-owned supermarkets are among the local businesses that can apply, as are sole proprietors, such as freelancers who work a typical day job.

Small company loans have stricter eligibility restrictions than personal loans, particularly if you're asking for an SBA loan. However, the benefits are well worth it because these loans can provide your company with the capital it requires to expand. Alternative business financing techniques, such as invoice factoring or merchant cash advances, may be more expensive, leaving small business loans as the most cost-effective option.

10. Title Loans

Another sort of secured loan is a title loan, which involves pledging the title of a vehicle you own, such as a car, truck, or RV, as security. Your loan limit is usually between 25% and 50% of the value of your car, as determined by the lender. Title loan lenders also impose a monthly fee of 25% of the loan amount, resulting in an annual percentage rate (APR) of at least 300 percent, making them an expensive financing alternative.

For several reasons, these loans differ from regular vehicle or RV loans:

  • They impose exorbitant fees.
  • You offer the lender the title as security for the loan.
  • They're short-term loans with a maximum period of 30 days.

As a result, title loans are similar to payday loans in that they are high-cost, short-term, small-dollar loans that are frequently regarded as predatory.

11. Pawnshop Loans

Pawnshop loans are another form of loan we don't normally advocate because they're pricey, have low loan limits, and expect speedy return. You must bring something of value to the pawnbroker in order to obtain a pawnshop loan, such as a power tool, jewelry, or a musical instrument.

The pawnbroker will evaluate the item and, if you accept the loan, it will normally be worth 25% to 60% of the item's resell value. You'll get a pawn ticket, which you'll need when it's time to pay back the loan, which should be within 30 days. If you don't show up or lose your ticket, the pawnbroke

12. Boat Loans

Boat loans are offered through banks, credit unions, and internet lenders and are specifically tailored to fund the purchase of a boat. Unsecured loans use your boat as collateral, while secured loans use your boat as collateral. It's critical to consider depreciation while taking out any vehicle-related loan.

Boats and other vehicles depreciate in value over time, particularly if you purchase a new boat. It's possible to owe more on a long-term loan than you can sell your boat for if you choose a long-term loan, don't put down a substantial down payment, and/or sell it shortly after you buy it. This means you'll have to keep paying down the debt even if you sell the yacht, which isn't a good situation to be in.

Loans for recreational vehicles (RVs) are number thirteen.

RV loans are available in two types: unsecured and secured. Smaller RV loans are often unsecured and operate similarly to a personal loan, whereas larger, more luxurious RVs are secured (with the RV as collateral) and operate more like a car loan.

You can get RV loans for roughly $25,000 that you payback over a few years, or you can find loans up to $300,000 that you repay over 20 years, depending on the lender.

RVs are enjoyable and can assist you and your family in spending valuable time together. However, depreciation should be considered when purchasing a new RV, especially if you plan to sell it at some point in the future.

14. Family Loans

Family loans are short-term loans obtained from family members (and sometimes friends). If you can't get a standard loan from a bank or lender, for example, you might resort to family.

Family loans are advantageous because they do not require credit. Your family member can choose to provide you the loan if they trust you and have the financial resources to do so.

However, this does not imply that you should take advantage of your relative's generosity. It's still a good idea to prepare and sign a loan agreement that details interest payments, due dates, late fees, and other penalties if you don't pay on time. To assist you, you can use the internet to discover draft agreements and payment calculators.

15. Land Loans

People buy land for a variety of reasons. They might desire to build a house on it, exploit its natural resources, or rent it to other people and corporations. However, land can be costly, which is where a land loan might help.

There are two types of land loans: developed and unimproved land loans. Land loans with better terms are available for plots that are ready to build on. They may already have a well and septic tank, as well as electrical lines and a driveway. Loans for unimproved land, on the other hand, are for a plot of undeveloped land that may or may not be easily accessible.

Because land loans are a more hazardous transaction for a lender, you should expect higher interest rates, stricter down payments, and stricter credit criteria than other types of property loans.

16. Pool Loans

If you want to add a pool to your property, you'll almost certainly need to take out a loan unless you're buying an inflatable kiddie pool. According to Fixr, pools can cost anywhere from $3,000 to $100,000 or more, depending on how fancy you want to get.

It's a good idea to think about the resale value of your house if you add a pool to it, just like it is with RVs, boats, and other lifestyle loans. Because not everyone wants a pool, if you plan to sell your property in the future, you may be limiting the number of individuals interested in buying it.

Alternative Financing Options

We've gone over many of the different sorts of loans available. If you do need to borrow money, you have alternative options besides loans, such as:

  • Credit cards. Credit cards are an easy way to pay for all but the largest purchases, and may even come with rewards for specific expenses.
  • Line of credit. You can get a line of credit from your bank or credit union. You can even get secured credit, such as a home equity line of credit (HELOCs).
  • Gift. If you have a wealthier friend or family member and you don’t mind schmoozing them up, you can sometimes get the cash you need that way. Many parents save for their child’s college education or even down payments on a home, for example.