Chances are, if you are looking at taking out a loan, you will have been advised to shop around for the best rates. Yet, have you considered the best types of loans as well?
We hear so much talk of interest rates from selective providers but not that much when it comes to the different types of loans you can borrow. These are the most common types of loans available on the market:
Unsecured and Secured Loans
The main difference between these two is that secured loans require an asset of some sort to be used as collateral when taking on the credit, whereas unsecured loans do not.
The interest rates for secured loans are usually lower than unsecured ones but, in most cases, will only allow the lender to borrow the amount of value as the asset in question.
Unsecured loans may not need this collateral, but they still require you to have a good credit history and, as a result, are prone to higher interest rates.
Closed and Opened-Ended Loans
Open-ended loans allow you to borrow over time, again and again. The most common examples here are credit cards and other lines of credits, which come attached with a credit limit and a maximum borrowing amount.
How much of your credit you use is your decision, but each time you make a purchase, this valuable credit decreases. If you pay the recommended payment and abide by the rules, you can use this credit repeatedly.
Closed-end loans differ in that once they have been repaid, they cannot be borrowed again. The balance reduces with each payment, but should you ever need to add to the amount, the entire application process needs to be resubmitted and approval granted to start all over again.
Examples of closed loans include mortgage loans and student loans.