A guide to finding the right loan for you


Editorial credit: Castleski

Before taking out a loan, you need to ask yourself what you hope to get out of it. There are tons of different types of loans out there, and some of them might be more realistic for your budget, long-term goals, and instant needs.

Below we have a quick description to help you understand the difference between the 10 most common loan types. Then you will be able to determine which one is best for you.

All of the loans below will be either strictly secured or unsecured, or they will have the option to choose one or the other. For this reason, it is important to know what the two terms mean and which one is more useful to you.

A secured loan is a loan to which one or more valuables are legally bound. This means that if you fail to repay your loan, the lender may repossess that item as collateral. For this reason, secured loans tend to have cheaper interest rates.

Unsecured loans are harder to get and cost you more money in interest payments because the lender has taken a risk on you. This is because you have not tied an object to the agreement, so failure to pay will leave the lender out of pocket. To protect themselves, they will charge you more.

Ideally, secured loans are the best option because if you pay according to the agreement, your item won’t be taken from you and you’ll get a cheap loan. However, not everyone has an item worth their desired loan amount.


Mortgages are an excellent example of secured loans. They are used to buying houses and other goods. The house is often used as collateral if you are unable to pay the mortgage. The house is worth the loan amount, which proves to the lender that you can repay the money regardless of the monthly payment.

Of course, you are still expected to pay, otherwise the house will be taken from you.

This process allows ordinary people to buy homes that would typically take over 40 years to save.

Personal loans

Personal loans can be used for almost anything; weddings, vacations, medical payments, the list goes on. That being said, they tend to have a relatively short time. You are often expected to repay a personal loan within 84 months.

Depending on your lender, this could be negotiated. For example, CreditNinja.com will customize your loan term to better suit your needs. As long as they can predict that you can repay the loan according to the new agreement, they will have no problem making something less generic.

Automatic loan

These types of loans are designed for vehicles. They tend to last 3 to 7 years and allow the borrower to purchase the car in installments instead of a single payment.

These loans are also often sold by car dealerships to help potential buyers bring their car home. They are sometimes called “buy now, pay later” loans.

It should be noted that these types of loans often cost double the amount of the initial payment.

Home Equity Loans

Equity is when you own something that you could sell. Home equity means that you own part or all of your home. If you’ve paid off 50% of the mortgage on your house, you own 50%.

A home equity loan is essentially a second mortgage. The idea is that you get a secured loan using the part of your house that you own.

Legally, you can borrow up to 85% of the equity in your home, and this is normally granted to you in one lump sum. You either have to pay this amount back over a period of time, or when you die, that part of your home is then given to the lender. It is a popular option for older people.

Credit building loans

Credit Builders are short-term loans designed to help people who have not yet taken out credit. Although people with bad credit can sometimes apply for these loans, the idea is to help those who are just starting out get a credit history before trying to get a bigger loan, like a mortgage.

Debt consolidation loans

Consolidation loans are designed to help you streamline all your debts and consolidate them into one place. This will help you track your payments.

These types of loans are not always labeled as such. This is because the best consolidation loans are the ones with the lowest interest rates. The lowest interest rates are often only offered to new customers to entice them into the business. This means that to get the best loan to consolidate your debts, you should look for a new lender every two years. This will allow you to place your debts at the best interest rate, which will reduce the overall price.

Payday loans

Payday loans are loans designed to help you last until your next payday. You don’t need good credit to apply for them, which means they’re the go-to option for people in dire straits. For example, if you are nearing the end of your monthly paycheck and your car breaks down, a payday loan can be used to repair the vehicle and you can repay the loan with your next check.

However, these loans are expensive due to the fact that they do not check your credit. If you can afford to avoid these loans, you should.


Pawnbrokers are another expensive one. They work like a secured loan when you bring items like jewelry, games, or a TV to a pawn shop. The broker then values ​​the object and lends you between 25% and 65% of the object’s value. You then receive a ticket and must repay this debt within 30 days.

If you don’t pay within 30 days or lose your ticket, the broker may sell your item.

Think of it as a cross between a payday loan and a mortgage.



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