Types of Loans: A Complete Guide

Guide to common loan types

Pick the right loan by matching rate, term, and collateral to your goal and budget.

Consumer loans

Type	Best for	Key notes
Personal loans (unsecured)	Versatile uses, debt consolidation	Fixed rate/term; no collateral; APR depends on credit
Auto loans (secured)	Vehicle purchases	Car as collateral; lower rates; watch fees and term length
Mortgages (secured)	Home purchase	Longest terms, lowest rates; property lien; higher closing costs
Home equity loans/HELOCs	Tapping home equity	Collateralized by home; potential tax benefit if used for improvements; lien risk
Student loans	Education costs	Federal benefits (IDR/forgiveness) vs. private fewer protections
Credit cards/lines of credit	Revolving, short-term spend	Pay in full to avoid interest; high rates if carried
Payday loans	Avoid	Very high cost; risk of debt cycle

Business financing

• Term loans: Fixed schedule for expansion/equipment.
• SBA-backed loans: Competitive rates/terms; more paperwork.
• Business lines of credit: Flexible working capital; variable rates.
• Invoice/equipment financing: Asset-secured; tied to specific collateral.

How to choose

• Compare APR (rate + fees) and total interest over the term.
• Match term to asset life; avoid long terms for short-lived expenses.
• Weigh secured (lower rate, asset risk) vs. unsecured (higher rate, no lien).
• Check prepayment penalties and flexibility (deferral/hardship options).

FAQs (top questions)

Fixed vs. variable?

Fixed gives predictable payments. Variable may start lower but can rise—ensure you can handle increases.

Can I have multiple loans?

Yes, if income and DTI support them. Each new account affects credit and cash flow.

Which loan should I prioritize paying off?

Focus on highest APR first (avalanche) or smallest balance for momentum (snowball), while staying current on all.

Internal Links

• Learn how interest rates work before comparing offers.
• Review repayment strategies to cut interest.
• See loan terms to avoid to steer clear of traps.

External resources

• CFPB guides on common loan types

Conclusion

Choose the loan type that balances cost, risk, and purpose. Compare APRs and fees, match the term to the asset, and avoid high-cost products like payday loans.