Types of Loans & Types of Credit

Loan contracts come in all kinds of forms and with varied terms, ranging
from simple promissory notes between friends and family members to more complex loans like mortgage, auto,
payday and student loans.
Banks, credit unions and other people lend money for significant, but necessary items like a car, student loan or
home. Other loans, like small business loans and loans from the Department of Veterans Affairs, are only
available to select groups of people. And two atypical loans are payday loans and loans from a retirement
account.
Regardless of type, every loan and its conditions for repayment is governed by state and federal guidelines
to protect consumers from unsavory practices like excessive interest rates. In addition, loan length and default
terms should be clearly detailed to avoid confusion or potential legal action.
In case of default, terms of collection of the outstanding debt should clearly specify the costs involved in
collecting upon the debt. This also applies to parties of promissory notes as well.
If you are in need of money for an essential item or to help make your life more manageable, its a good thing
to familiarize yourself with the kinds of credit and loans that might be available to you and the sorts of terms
you can expect.

Types of Credit
The two basic categories of consumer credit are open-end credit and closed-end credit. Open-end credit, also
called revolving credit, requires monthly payments that are less than the total amount due.
Examples of revolving credit are credit card accounts and home equity lines of credit. In each case, consumers
can use their credit while paying on their account balance.

Closed-end credit provides a fixed amount of money to finance a specific purpose for a specific period of time.
Examples of closed-end credit include:

Mortgages

Car loans

Appliance loans

Payday loans

Types of Loans
Loan types vary because each loan has a specific intended use. They can vary by length of time, by how
interest rates are calculated, by when payments are due and by a number of other variables.

Student Loans
Student loans are offered to college students and their families to help cover the cost of higher education.
There are two main types of student loans: those offered by the federal government, and those offered by
private lenders. Federally funded loans are better, as they typically come with lower interest rates and more
borrower-friendly repayment terms.

Learn more about student loans.

Mortgages
Mortgages are loans distributed by banks to allow consumers to buy homes they cant pay for upfront. A
mortgage is tied to your home, meaning you risk foreclosure if you fall behind on loan payments. Mortgages
have among the lowest interest rates of any loans.

Learn more about mortgages.

Auto Loans

Like mortgages, auto loans are tied to your property. They can help you afford a vehicle, but you risk losing the
car if you miss payments. This type of loan may be distributed by a bank or by the car dealership directly. While
loans from the dealership may be more convenient, they often cost more overall.

Learn more about auto loans.

Personal Loans
Personal loans can be used for any personal expenses and dont have a designated purpose. This makes them
an attractive option for people with outstanding debts, such as credit card debt, who want to reduce their
interest rates by transferring balances. Like other loans, personal loan terms depend on your credit history.

Learn more about personal loans.

Loans for Veterans

The Department of Veterans Affairs (VA) has lending programs available to veterans and their families. With a
VA-backed home loan, money does not come directly from the administration. Instead, the VA acts as a cosigner and effectively vouches for you, helping you earn higher loan amounts with lower interest rates.

Learn more about VA loans.

Small Business Loans

Small business loans are granted to entrepreneurs and aspiring entrepreneurs to help them start or expand a
business. The best source of small business loans is the U.S. Small Business Administration (SBA), which
offers a variety of loan types depending on each businesss needs.

Learn more about small business loans.

Payday Loans
Payday loans are short-term, high-interest loans designed to bridge the gap from one paycheck to the next.
They are predominantly used by repeat borrowers living paycheck to paycheck. Because of the loans high
costs, the government strongly discourages their use.

Learn more about payday loans.

Borrowing from Retirement and Life Insurance

Those with retirement funds or life insurance plans may be eligible to borrow from their accounts. This option
has the benefit that you are borrowing from yourself, making repayment much easier and less stressful.
However, in some cases, failing to repay such a loan can result in tax consequences.

Learn more about retirement accounts.

Consolidated Loans
A consolidated loan is a loan meant to simplify your finances. It is a loan that pays off all or several of your
other loans and debts, particularly credit card debt. It means fewer monthly payments and lower interest rates.
Consolidated loans are typically in the form of second mortgages or personal loans.

Learn more about consolidated loans.

Borrowing from Friends and Family

Borrowing money from friends and relatives is an informal type of loan. This isnt always a good option, as it
may strain a relationship. To protect both parties, its a good idea to sign a basic promissory note.

Learn more about borrowing from friends and family.

Whenever you decide to borrow money whether it is to pay the bills or buy a luxury item make sure you
understand the agreement fully. Know what type of loan youre receiving and whether it is tied to any of your
belongings.
Also, familiarize yourself with your repayment terms: what your monthly obligation will be, how long you have to
repay the loan and the consequences of missing a payment. If any part of the agreement is unclear to you,
dont hesitate to ask for clarifications or adjustments.

Source: https://www.debt.org/credit/loans/ on 17/04/2015

Credit and Your Consumer Rights

Personal debt and credit accounts underwent a revolution beginning in the late 1960s. As account information
became computerized and standardized, lawmakers attempted to fill the holes left in consumer rights.
Beginning with the Consumer Credit Protection Act, new protections were established for consumers and their
financial records. Among these were the Right to Financial Privacy Act, the Credit Practices Rule and the
Expedited Funds Availability Act.

Right to Financial Privacy Act

The Right to Financial Privacy Act was passed in 1978 to limit government access to personal financial records.
In most cases, a government agency must follow a specific protocol to see your financial records your
written consent, a subpoena or a search warrant is required.
There are some exceptions to this rule:

Under specific circumstances, you may not be asked or told ahead of time that a government
agency is viewing your files.

A bank or other financial institution has the right to notify police if it has information about illegal
activity.

Your bank has the right to submit copies of your financial records to a court in order to prove
a bankruptcy claim or attempt to collect a debt.

A financial institution also may release your records if it removes all personal identifying information.

The law does not apply if a supervisory or consumer rights agency needs records to research consumer
complaints. In these instances, the records are used to scrutinize the financial institution and not you.

Credit Practices Rule

The Credit Practices Rule was established in 1985 to protect the rights of consumers in debt. It applies to
consumer-credit contracts made with creditors such as car dealers, department stores and financing
companies. It does not apply to real estate purchases, bank loans or contracts with loan associations.
Here are a few of its provisions:

Under the Credit Practices Rule, creditors cannot make you give up your right to be notified of a
court hearing. If you are sued for not paying a debt, this ensures that you know about the hearing.

Creditors cannot require you to give up rights that protect certain personal belongings. In most
states, if you fail to pay your debt, you are still entitled to keep your home, clothing and other personal
items.

Creditors also cannot require you to use personal or sentimental items as collateral. This includes
wedding rings, pets, linens, documents and other household items.

Some creditors may want you to agree to have money automatically deducted from your paychecks
if you fall behind on loan or debt payments. Creditors are allowed to offer this option only under the
condition that you can cancel automatic deductions at any time.

Creditors have the right to charge a late fee if your loan payment is late. But they are banned from
implementing a practice known as pyramiding late fees. If you make your usual payment on time but
fail to include the owed late fee, the creditor cannot charge you an additional late fee.

Expedited Funds Availability Act

The Expedited Funds Availability Act, passed in 1987 and amended in 2010, limits the time between when you
deposit funds into your account and when those funds become available for use.
A 2010 amendment to the act detailed when certain amounts of a deposit are available to an account holder.

When you deposit cash, electronic funds and some checks, you will be able to access and withdraw these
funds on the business day following the day the deposit is received.
So, if you deposit money into your account on Monday, the funds must be available to you by Tuesday. If you
made the deposit over the weekend, the bank will receive it Monday and must make the funds available by
Tuesday.
For personal checks or checks over $100, the wait time may increase. Depending on the check type and
amount, the wait may be three to five business days.
Longer delays are allowed in several circumstances, such as in cases of check deposits totaling more than
$5,000 on a single day, for new accounts, and for accounts with a recent history of overdrafts.

Other Consumer Protections

These are just a few of the provisions relating to consumer financial rights. The Consumer Credit Protection
Act, for example, deals with credit reports and other aspects of debt and credit. To learn more about your credit
and consumer rights, visit the Federal Trade Commissions website.

Source: https://www.debt.org/credit/your-consumer-rights/ on 17/04/2015

Types of Real Estate

There are three main types of real estate: residential, commercial and investment properties. Residential,
owner-occupied homes are the most common forms of U.S. real estate, with more than 130 million residential
housing units as of 2010. Real estate that is used principally to conduct business on the premises is classified
as commercial property. An investment property is one the owner uses to generate income. The investor does
not live in or use the property. Rather, someone else leases the property, generating income for the landlord.

Real Estate Risks and Rewards

Owning real estate comes with its fair share of risks and rewards. Among the risks are the following:

Declining property values as a result of volatile housing markets

Liability for any negative actions that happen on your property

Increased debt in the form of mortgages

Real estates possible rewards include:

Short-term profit for investors in an improving housing market

Leverage for financial opportunities like loans and business development

Diversification of investment portfolios

Source: https://www.debt.org/real-estate/ on 17/04/2015

What is Debt Consolidation?

Debt consolidation is a widely used term that can imply the use of a number of different debt assistance plans
that combine multiple debts, loans or payments. There are three main types of debt relief options available:
Debt Consolidation Loans, Student Loan Consolidation, Debt Management Plans and Debt Settlement. When
done the right way, debt consolidation can:

Lower your interest rates

Lower your monthly payments

Protect your credit rating

Help you get out of debt faster

Debt Consolidation Loans

Consolidating your debts by taking out one large loan or a loan secured against an asset, such as a house to
pay off a combination of smaller loans or accounts, is not advised. It uses one lump sum to cover the amount
owed on multiple accounts. However, that new loan is now secured. You have just taken an unsecured debt
and collateralized it against your home or other personal property. By taking out a new loan, you may qualify for
a lower or fixed interest rate and will only be required to make a single monthly payment.

LEARN MORE

Debt Management Plans

A Debt Management Plan (DMP) is the preferred method of debt consolidation, which many people choose
because they can substitute multiple monthly payments with just one monthly payment. A DMP is a type of
payment consolidation that could result in lower interest rates to your creditors. This means that you can make
one consolidated payment and have that payment split among all your debtors. Utilizing a debt management
plan may not hurt your credit score.

LEARN MORE

Debt Consolidation vs. Debt Settlement

For many people, debt consolidation equates to debt settlement, a process of negotiating your debts to ensure
lower payments, although the two services are completely different. Debt settlement allows you to make one
monthly payment, but that payment isnt going to your creditors. Instead, an account is built up with enough
money to pay off one debt at a time, at a negotiated lower amount. This is commonly considered consolidation
because instead of making multiple payments to your creditors, you are now making one monthly payment to a
debt settlement company with the intention of negotiating a lower debt payoff.

LEARN MORE ABOUT DEBT SETTLEMENT

How to Consolidate Your Debt

Take Action
Making the decision to take action is the first step. Ignoring your debts will not make them go away; it will make
your problems worse. The sooner you address your debts and make a plan to repay, negotiate, or consolidate
them, the sooner youll be living a life free of debt.

Know Your Options

A debt management plan or debt settlement should be your top options for consolidating your credit card debt,
but alternatives include obtaining a debt consolidation loan, borrowing from your retirement funds or the equity
in your home, and consolidating your student loans. While you can't consolidate federal student loans with

other debts, including private school loans, lending institutions can consolidate private education loans with
other sources of debt.

Know the Risks

Financial advisors tend to lean away from turning unsecured debt into secured debt, so utilizing home equity is
often not considered the best option. You risk losing some or all of the assets you used to secure the debt.
Similarly, you should explore all other options before choosing to withdraw money from tax-free accounts you
set up for your retirement.

Source: https://www.debt.org/consolidation/ on 17/04/2015

Loans in India
Finance Loans

A loan is an arrangement in which a borrower takes money from a lender or a

financial institution and promises to return it within a fixed period of time and at a
fixed rate of interest, which is determined at the time the loan is granted. In most
of the cases, a loan is returned in fixed installments and each installment is a fixed
amount of money.
There are various types of loans. Some of them can be classified as follows:
Secured and Unsecured Loans

Secured Loan: A secured loan is one in which you get loan against an asset
that you possess. For example, you can take a loan against your property, a
vehicle that you own, your jewelry etc. If by any chance you are unable to
pay back the money you have taken as loan, the financial institution will sell
that asset and recover the amount. The interest rates may be lower for
secured loans as compared to unsecured loans. The financial institution from
which you take a secured loan usually estimates the market value of the
asset you keep as security.

Unsecured: If you do not have an asset to keep as security, you can get an
unsecured loan. However, in order to qualify for this loan you would have to
have a good record of credit history
and have a good income. The interest
rates for unsecured loans are usually
higher as compared to secured loans.

Subsidized and Unsubsidized loans

It you are granted a loan as part of your
financial

aid,

you

might

be

eligible

for

subsidized or unsubsidized loans, or can avail

both.

Subsidized loans are awarded to those who qualify for it and the borrowers
are not charged any rate of interest. In India, the best example of subsidized
loans are those given by rural banks or cooperative banks to the farmers,

especially for the purchase of farm equipments like tractors, pumps etc, or to
implement

latest

technology

that

would

increase

their

produce.

Some

countries provide subsidized loans to students to pursue their studies.

Unsubsidized loans are given to lenders at a fixed rate of interest till the
time the full amount is repaid. The interest rates charged on this type of loan
can be minimized by repaying the loan before the interest accumulates.

Open-Ended and Closed-Ended Loans

Open-Ended loans are loans in which you can take loans several times. You
can pay the loan and take a loan again. You have a credit limit for these
loans. This means that you cannot take loan against an amount fixed by your
lender. You need to pay interest on these loans only if you exceed the credit
limit or you pay after the date of maturity. The credit limit can be increased
by the lender if you have a good record and do not default in payments.
Credit cards and lines of credit are a good example of open-ended loans.

Closed-Ended loans are loans that are fixed at the time you take them. This
means that when you take this loan, the amount of installments to be paid,
whether it has to monthly or half yearly etc., the duration till when you have
to repay the loans are fixed by the lender when you take this loan. These
loans are given against an agreed rate of interest. If you want, you can repay
the installments before the term alloted for it. Some examples of open-ended
loans are car loans, mortgage loans student loans.

Demand Loans: These are short term loans and have to be paid by the borrower at
any time it is asked to be repaid to the lender. Unlike other types of loans, this loan
does not have a date of maturity and at times may not have specific schedule for
repaying the loan. These loans are at times said as 'call loan' and are given by
lenders to borrowers with whom they have long standing business relationship. This
loan is good for the borrowers as they can repay it it according to their
convenience.
Banks are the chief providers of loans in the country. But before you take a loan
from a bank, make sure that you are aware of the various types of loans that you
can avail and also know the rates of interest offered by various banks. Loans can be
further categorized; however, this would depend on whether the borrower is an
individual or an organization that wants to take loan for a business transaction.

Source: http://www.vitt.in/loans.html on 17/04/2015