A loan is a type of credit that can be utilized for a number of different purposes. The type of loan you need will depend on your purpose. Whether you want to fund a small business or go on vacation, there is a specific loan to suit your needs. The following are some of the most popular types of loans.

Personal Loans

A personal loan can be used to pay for almost anything, from a utility bill to a used car. Personal loans are typically unsecured and may range from the hundreds to thousands of dollars in amount, depending on the need. The lender, which is usually a bank or credit union, will ask you to provide proof of income and/or other assets that are worth as much as you’d like to borrow. The biggest downside of a personal loan is usually the interest rate, which ranges from 10-12%. In addition, most banks require borrowers to pay back the loan within one or two years, making personal loans a poor choice for longer-term projects.

Credit Cards

A credit card allows a consumer to make purchases with money that will be paid back at a later date – a loan. Today, credit cards are a convenient source of payment for most if not all transactions. Obtaining a card is also fairly easy and in many cases doesn’t require more than a one-page application, which is reviewed quickly. The pitfall to spending with a credit card is the high interest rate. Some companies charge 20% interest per year. Some consumers find it all too easy to get into debt with a credit card; not only are credit cards accepted for a wide variety of types of purchases, it is psychologically easier to make a purchase when you don’t have to pay right away.

Home-Equity Loan

If you’re a homeowner, you can take out a loan against the equity that you’ve accumulated on your house. The amount of home equity available for your loan will amount to the approximate difference between the market value of your home and the amount you still owe on the mortgage.

Most of the time, this kind of loan is used to renovate the home or consolidate debt. Interest rates are far more reasonable than other types of loans and home-equity loans also last longer, generally between fifteen and twenty years. Another desirable feature of home-equity loans is that interest is tax deductible, meaning that it doesn’t count as income. The danger with a home-equity loan is that it’s easy to get in over one’s head, especially when only one family member is generating income. In the event of a death or disability, home-equity loan borrowers could end up losing their home.

Line of Credit

A line of credit is often offered to a consumer by a bank or other financial institution. Unlike a personal loan, though, it is not a fixed amount geared towards one large purchase or expense. Instead, is a flexible but limited source of credit, similar to a credit card. A line of credit may be more difficult to obtain than a credit card. Borrowers have the option to pay back purchases right away or by a minimum payment on a month-to-month basis. This type of loan is useful for people who need to frequently take out small loans. They are also useful to people whose income is unpredictable. Lines of credit should not be used to fund large, one-time purchases of cars or houses.