--Emma Czerniejewski
You may have heard of a loan before for college or a house or many other things, people take out loans for all types of things. A loan is when the bank gives you a certain amount of money upfront, then over time in small payments you pay back the money they gave you, while paying the bank interest to give you the money in the first place, and also so they can make a profit off you. There are 4 different types of loans, unsecured Personal Loans, Secured Personal Loans, Fixed-Rate Loans, and Variable-Rate Loans.
The first type of loan is an unsecured personal loan, this type of loan can be used for just about anything. It’s paid back with monthly installments with interest. Unsecured personal loans are great as the application process is super easy and because this loan is unsecured you don’t have to give up any collateral such as your car or home. Unfortunately this may mean that the loan you receive is smaller and your interest rates will be higher as it’s a bigger risk for the bank.
Next is the secured personal loan, which is basically the opposite of an unsecured personal loan. With a secured loan you give the bank something of yours for collateral such as your car, therefore you don’t need amazing credit or any credit at all to qualify for this loan because the bank has something of yours to take either way. Also because you are promising the bank something of yours if you do not follow through you are granted lower interest rates. This can be great for student loans or a first loan.
Lastly we have fixed rate loans and variable rate loans, these types of loans are usually used for house mortgages. With fixed rate loans the interest rate will stay the same from the moment you take out the loan until you finish paying it, even if that’s decades later. Whereas with variable rate loans the interest rate will continue to change with the economy. According to investopedia.org “Studies have found that over time, the borrower is likely to pay less interest overall with a variable rate loan versus a fixed-rate loan. However, historical trends aren't necessarily indicative of future performance” Therefore, this type of loan can be best used if you know the interest rate will be going down.
In conclusion, not one loan is better than another as they all have their benefits for different situations. It’s good to know and review your options to make sure you can save the most money possible.
Works Cited
Addessi, Frank. “The Pros and Cons of Unsecured Personal Loans.” SmartAsset, SmartAsset, 19 June 2018, smartasset.com/personal-loans/the-pros-and-cons-of-unsecured-personal-loans.
“Error: Credit Karma.” Error | Credit Karma, www.creditkarma.com/personal-loans/i/what-to-know-secured-loan.
Lee, Matt. “Fixed and Variable Rate Loans: Which Is Better?” Investopedia, Investopedia, 16 Sept. 2020, www.investopedia.com/ask/answers/07/fixed-variable.asp.
Pritchard, Justin. “What Is a Fixed-Rate Loan, and When Should You Use One?” The Balance, www.thebalance.com/fixed-rate-loans-315603.
“Secured Debt – Types and Solutions.” Debt.org, 28 Aug. 2017, www.debt.org/credit/loans/secured/.
Before reading this article I'd had some idea of what a loan is, however, I'd never thought that there be four other different types of loans. It's really interesting to see the more things that you tend to find out that gives you a lot of insight. Lastly, my question is what loan would apply for yourself?
ReplyDeleteI really appreciate how you explained the different types of loans, as I have always been curious to how they work. I never really knew there were so many different types of loans, aside from just a generic loan you can take from the bank. It is really good to know this information for future use when I need to apply for a loan and can now understand the differences, advantages, and different types loans that there are available for me to use. I wonder how many people actually learn this information before going to apply for a loan..?
ReplyDeleteI've heard my parents talk about loans before but I never knew the types or how many loans there are. It’s interesting to compare and contrast different loans to figure out which ones are best for you. Loans can be a tricky idea to grasp because its dealing with money which is a sensitive topic. I think Emma did a thorough job explaining the different types of loans and what they are used for, this information will help me in the future when applying for a loan.
ReplyDeleteMy dad works in credit and collections so I hear about loans a lot but I never really understood the difference between them so this really helped me understand the difference and why some might be more beneficial for certain situations. One things that my dad always said is never sign a personal guarantee because if your loan defaults, it could cost you your house, car, and much more.
ReplyDeleteI had mo idea that there were different kinds of loans. I appreciate that you explained what each loan is best for. Its also helpful to see the risks and benefits of each loan.
ReplyDeleteYou did an excellent job describing the differences between loans - especially with secured and unsecured loans. Personally, I never quite understood what the difference between an unsecured vs. secured loan was, but now it's a lot more clear. This blog makes me a little worried for in the future applying for loans if the bank possibly could take ownership of an asset of mine. Does this worry you at all? Or do you think it makes sense for the banks to do so?
ReplyDeleteThere are so many different types of loans it is hard to keep track! You did an excellent job on describing each of them, but my question to you is what scenario would fit with each type of loan? I feel like that would help readers understand the piece a little more. Also, I know that student loans are the second highest cause of debt because of how much interest is added to them and how long it takes to pay off. A huge suggestion for any loan is to pay it off as soon as possible so that the interest does not build up and you don’t end up having to pay more interest than your initial loan.
ReplyDeleteI had a little background knowledge on this befor reading since we learned a lesson about it just recently. But I never really understood the difference on a fixed rate loan and a varible rate loan. Your explination was the perfect and simple way to explain the differences between the two and why on might be better than the other. Also, with a secured personal loan, if you don't pay back your loan and the bank takes your collateral, what do they do with it? That is something that has always confused me. ANyways, you did a good job simply explaining the four different types of loans there are.
ReplyDeleteYou did a great job formatting your blog. It is very organized, and because of that, It is very easy to follow. It was interesting to read about the difference between the types of loans you can get. I didn't know that there are only four types of loans so I'm glad you were able to explain the differences to me. After reading your blog, I totally agree with your assessment that it would be a good idea to review the different types of loans before you get one as they each have their own benefits and downfalls. I do, however, have one question about the types of blogs. Could you get a personal loan with a fixed rate vs. variable rate or are those completely seperate?
ReplyDeleteI knew there were a few types of loans before this article, but you really helped me understand them better! What are the pros and cons of a fixed vs variable loan? Would one be better than the other in certain applications? I know student loans are super important to a lot of us super soon. Which one would be the best for a student loan and why?
ReplyDeleteI thought your blog was very insightful and informational to understand the different types of loans. Soon loans will be a very relevant thing in our lives and understanding which loan is the best for your situation can be very helpful and save you money in the long run. One thing that I thought was very well done in your article was emphasizing the loans from the banks point of view. Most people only think of a loan from there point of view, but the bank is trying to make money and wants to ensure they get their money back. Well Done!
ReplyDeleteGreat information about the different types of loans. Before reading this I had an idea of what a loan is but this article helped really me understand even more that there are different types of loans and it can benefit you in different ways. Now knowing this information In the future I am able to distiguish what loan is best for me when applying for one.
ReplyDeleteYou did a really good job describing loans as they can be complicated and hard for people to decide what to do with them. It is really important for us to start learning about loans early because they are going to be relevant in our lives soon. What type of loan do you think would be best for you in the future? I know it is really hard to see it now but it might be helpful to know. I feel like I might have a unsecured personal loan in the future because that way the interest rate won’t be so high. Good job!
ReplyDeleteI really like this blog post because it shows which type of loans we can get. Which really helps me and others because we have schooling, cars, etc we need to pay for. Good Job!
ReplyDeleteI think that this blog was very informational and gave me some insight on how loans work and more specifically what type of loan you would use in different financial situations. This was a very comprehendible message and written in a way I think made it easier for others to understand. Do you have a time when unsecured loans would maybe impact you in a negative way? Which loans are the most risky? Just some food for thought. Great job Emma!
ReplyDeleteThis is a great time to learn about loans. Today, especially student loans, can be very expensive, and if someone is not informed financially, they might rack up lots of debt, the blog could really help someone who might make that mistake. Not all loans are the same, but all have the same fundamental goal. If someone doesn't know if what loan is right for them, they might end up losing their car as collateral.
ReplyDeleteThis is very helpful to learn. I know many loans can be difficult to pay back sometimes, including student loans, which is a big political issue currently. I knwo maybe in the future I can look back at this and I might have to use loans in the future. Its helpful to know that not one loan is more useful than the other. I do wonder, if loans are going to be reduced any time in the future.
ReplyDeleteI didn't know much about loans, but it's an important topic of finance. You did very well in explaining what a loan is, how it works and also describing the different types of loans there are and the qualifications for each. Although all loans are beneficial, it's very helpful that you gave examples for which loans are better for different circumstances. It's a convenient time for us to learn about loans because it's senior year and some of us may take out a student loan for college.
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