What Types of Loans Are There?

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From auto loans to personal loans and student loans to mortgages, there are plenty of options from which you can choose, and they all fit into different buckets.

If you find yourself in need of funds but aren’t sure how to pick from the many types of loans out there, here are a few ways to tell them apart.

Open-ended vs. closed-ended loans

Open-ended loans, such as credit cards, offer revolving credit, meaning debt can be added to the loan as needed. By comparison, loans for a predetermined amount, such as auto loans, are considered closed-ended.

Open-ended loans

Examples: personal lines of credit and credit cards

Open-ended loans offer you the chance to borrow as much or as little money as you want, up to a certain amount, and then pay back some or all of the funds monthly. There’s no end date for this type of loan; it’ll always be open for you.

The upside to an open-ended loan is that you’ll be able to use exactly as much money as you need when you need it. This can come in handy if, say, you’re temporarily short on funds. The downside is that if you only make the minimum payments, the interest can add up.

Watch out for open-ended loans with a variable interest rate, which fluctuates depending on the market. This can add a sizable chunk of money to your payments if interest rates rise over the life of the loan. You can find more information on variable rates below.

Closed-ended loans

Examples: auto loans, student loans, and mortgages

Closed-ended loans are probably what you think of when you imagine a traditional loan. You borrow money for a specific purpose, such as paying for a car or house, and then you make monthly payments until it’s paid off.

Closed-ended loans are installment loans. When you borrow money, you make payments in installments until the loan is paid in full. You might have a five-year car loan or a 30-year mortgage — both have endings.

Closed-ended loans are clear-cut since you know exactly how much you’ll borrow and when you’ll have it paid off. Once the loan is paid off, you’ve held up your end of the bargain. And if you need to borrow money, you’ll have to get another loan, which can be costly with origination fees.

Fixed-rate vs. variable-rate loans

A variable rate is an interest that fluctuates over the life of a loan based on market conditions. A fixed rate means your interest rate never changes, regardless of how the market plays out.

You have the opportunity to choose a fixed or variable rate, depending on the lender and the type of loan.

Fixed-rate loans

Examples: federal student loans, and some personal loans, auto loans, and mortgages

If you have a federal student loan, it’ll come with a fixed interest rate. Congress determines these rates annually.

You can also get a fixed-rate mortgage, which means the interest rate won’t change for the duration of your home loan. This can be valuable when most interest rates are heading higher, as is the case now.

Variable-rate loans

Examples: some private student loans, personal loans, auto loans, and mortgages

If you get a loan with variable interest, it means your payments fluctuate depending on an underlying index rate that tracks the market.

Secured vs. unsecured loans

When you apply for a secured loan, you offer up something as collateral if you can’t pay off your loan. For an unsecured loan, you don’t have to provide any security for the debt, which means that if you can’t pay it back, it will go into collections and will tank your credit score.

Secured loans

Examples: mortgages and car loans

When you take out a car loan or get a mortgage, you’re receiving a secured loan. It’s easier to get because the collateral you put up secures your loan.

If you fall behind on your payments, your car could get repossessed or your house could be foreclosed on. Secured loans typically have lower interest rates because if you can’t pay back your loan, lenders have a way of recovering at least some of the cost.

Unsecured loans

Example: most personal loans

Personal loans that you use for anything you’d like are usually unsecured loans. These don’t require any collateral and are based on your credit score and income. You can use the loan however you wish, but you might have a harder time getting one if your credit history isn’t great.

Because there isn’t any collateral, unsecured loans tend to have higher APRs.

Types of loans

There are many types of loans that fall into the categories described above. Here are a few common ones that you might use at one time or another.

1. Student loans

These loans are meant for educational expenses, though the borrower can choose how exactly to spend the funds. Federal student loans are awarded to you based on your financial need.

If you don’t have enough money to pay for college even after federal student loans, you can take out private student loans, but make sure to compare lenders to see which offers the lowest interest rates and best repayment terms.

2. Auto loans

Whether you’re buying or leasing a car, an auto loan helps you pay for it if you can’t afford a full cash payment. They’re secured loans, which means if you don’t pay back your loan with minimum payments each month, your car could be repossessed.

Your interest rate depends on your credit score. If you don’t have great credit, you might need a cosigner for your auto loan.

3. Mortgages

Unless you can afford the entire cost of a home upfront, you’ll need a mortgage. It’s a type of secured loan that banks offer, usually with a low interest rate. If you can’t afford your mortgage payments and fall behind, you could lose your property.

4. Home equity loans

Home equity is the amount of your home’s value that belongs to you. In other words, it’s the total value minus anything you owe on it to a bank or other creditor.

You can use a home equity loan for almost anything, but your home is used as security if you can’t pay back your loan. This means it could go into foreclosure if you fall behind on payments.

5. Personal loans

Personal loans can be a good option if you need cash. Whether you’re trying to pay off high-interest credit card debt or stay up to date on bills, you can use personal loans for many things. As with any financial decision, though, you’ll want to shop around and consider your decision carefully.

Unsecured personal loans are harder to get because they require a great credit score. Payday loans are considered personal loans, but they should be avoided since they are short-term, high-interest loans. If you can’t pay it back by your next payday, don’t get a payday loan.

6. Refinance and consolidation loans

If you have a lot of different student loans, you might look into refinancing or consolidating them. This allows you to streamline your debt into one easily managed monthly payment.

Consolidation takes all your applicable debt and makes it into one loan, generally at a weighted average interest rate. You can consolidate your federal student loans, for example.

Refinancing loans replaces one or more loans with a new one, often with a lower interest rate, a longer repayment term, or both. If you’re struggling to pay high-interest credit card debt or your mortgage, you might consider refinancing those loans.

Find a loan that’s the right fit for you

Now that you’re familiar with the different types of loans, you can go through all your options to find the one that fits your situation best.

From secured or unsecured to variable or fixed, there are plenty of choices. The next step is to compare lenders and other options to get good repayment terms for your budget and low interest rates.

Interested in a personal loan?

LendingTree allows you to compare rates from multiple lenders by filling out one easy form. Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

RATES (APR)loan amount
5.99% – 17.88%1 $5,000 to $100,000
5.69% – 35.99% $1,000 to $50,000
6.98% – 35.89%* $1,000 to $50,000
99.00% – 199.00%2 $500 to $4,000
5.99% – 24.99%3 $5,000 to $35,000
5.99% – 29.99%4 $7,500 to $40,000
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1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Fixed rates from 5.99% APR to 17.88% APR (with AutoPay). Variable rates from 6.49% APR to 14.70% APR (with AutoPay). SoFi rate ranges are current as of November 4, 2019 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.49% APR assumes current 1-month LIBOR rate of 1.81% plus 3.08% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. To check the rates and terms you qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull.
    See Consumer Licenses.
  3. Minimum Credit Score: Not all applicants who meet SoFi’s minimum credit score requirements are approved for a personal loan. In addition to meeting SoFi’s minimum eligibility criteria, applicants must also meet other credit and underwriting requirements to qualify.
  4. If you lose your job through no fault of your own, you may apply for Unemployment Protection. SoFi will suspend your monthly SoFi loan payments and provide job placement assistance during your forbearance period. Interest will continue to accrue and will be added to your principal balance at the end of each forbearance period, to the extent permitted by applicable law. Benefits are offered in three month increments, and capped at 12 months, in aggregate, over the life of the loan. To be eligible for this assistance you must provide proof that you have applied for and are eligible for unemployment compensation, and you must actively work with our Career Advisory Group to look for new employment. If the loan is co-signed the unemployment protection applies where both the borrower and cosigner lose their job and meet conditions.
  5. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
2 Includes AutoPay discount. Important Disclosures for Opploans.

Opploans Disclosures

Direct Deposit required for payroll.

Opploans currently operates in these states: . *Approval may take longer if additional verification documents are requested. Not all loan requests are approved. Approval and loan terms vary based on credit determination and state law. Applications processed and approved before 7:30 p.m. ET Monday-Friday are typically funded the next business day.

  1. To qualify, a borrower must (i) be a U.S. citizen or permanent resident; (ii) reside in a state where OppLoans operates; (iii) have direct deposit; (iv) meet income requirements; (v) be 18 years of age (19 in Alabama); and, (vi) meet verification standards.
  2. NV Residents: The use of high-interest loans services should be used for short-term financial needs only and not as a long-term financial solution. Customers with credit difficulties should seek credit counseling before entering into any loan transaction.

  3. OppLoans performs no credit checks through the three major credit bureaus Experian, Equifax, or TransUnion. Applicants’ credit scores are provided by Clarity Services, Inc., a credit reporting agency.

  4. Based on customer service ratings on Google and Facebook. Testimonials reflect the individual’s opinion and may not be illustrative of all individual experiences with OppLoans. Check loan reviews.

  5.  

    Rates and terms vary by state.

3 Includes AutoPay discount. Important Disclosures for Payoff.

Payoff Disclosures

  1. All loans are subject to credit review and approval. Your actual rate depends upon credit score, loan amount, loan term, credit usage and history. Currently loans are not offered in: MA, MS, NE, NV, OH, and WV.
4 Important Disclosures for FreedomPlus.

FreedomPlus Disclosures

  1. All loans available through FreedomPlus.com are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. All loan and rate terms are subject to eligibility restrictions, application review, credit score, loan amount, loan term, lender approval, and credit usage and history. Eligibility for a loan is not guaranteed. Loans are not available to residents of all states – please call a FreedomPlus representative for further details. The following limitations, in addition to others, shall apply: FreedomPlus does not arrange loans in: (i) Arizona under $10,500; (ii) Massachusetts under $6,500, (iii) Ohio under $5,500, and (iv) Georgia under $3,500. Repayment periods range from 24 to 60 months. The range of APRs on loans made available through FreedomPlus is 5.99% to a maximum of 29.99%. APR. The APR calculation includes all applicable fees, including the loan origination fee. For Example, a four year $20,000 loan with an interest rate of 15.49% and corresponding APR of 18.34% would have an estimated monthly payment of $561.60 and a total cost payable of $7,948.13. To qualify for a 5.99% APR loan, a borrower will need excellent credit on a loan for an amount less than $12,000.00, and with a term equal to 24 months. Adding a co-borrower with sufficient income; using at least eighty-five percent (85%) of the loan proceeds to directly pay off qualifying existing debt; or showing proof of sufficient retirement savings, could help you also qualify for the lowest rate available.
* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

* Personal loans made through Upgrade feature APRs of 6.98%-35.89%. All personal loans have a 1.5% to 6% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. For example, if you receive a $10,000 loan with a 36-month term and a 17.98% APR (which includes a 14.32% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 in your account and would have a required monthly payment of $343.33. Over the life of the loan, your payments would total $12,359.97. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early. Personal loans issued by WebBank, Member FDIC.

** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.


Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

Published in Loans, Personal Finance

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