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Here are some of the different types of loans.

Unsecured Loan

An unsecured loan is a loan that is granted without any security or collateral. The borrower simply agrees in writing to repay the loan. These unsecured loans are sometimes referred to as signature loans or good faith loans. If the borrower fails to pay back the loan the lender has no collateral to take. An example of an unsecured loan is a credit card. When you make a purchase on a credit card you’re not offering anything to the credit card company as security or collateral. If you fail to make payments there’s nothing of yours they can take, except of course your good credit standing. Since unsecured personal loans are riskier for the lender they will frequently have higher interest rates and fees than secured loans.

Mortgage Loan

Most people don’t buy a home with cash. Therefore most have some sort of mortgage loan. There are two major types of mortgage loan, the fixed rate mortgage and the adjustable rate mortgage. The fixed rate mortgage will have an interest rate and payment that is unchanged over time. The second type of loan, the adjustable can vary over time.

With a fixed rate loan your payment stays the same from month to month and year to year and unless you decide to refinance your house, your payments will stay the same for the entire length of the loan. This will remain true even if you keep your loan for 30 years. The advantage of a fixed rate mortgage is you won’t have to worry about increases in your monthly payments which comes in later years with an adjustable loan.

With an adjustable loan also called an adjustable rate mortgage or ARM you have an interest rate that changes over time. It might adjust up or down, depending on market conditions and your payment will adjust up and down with it. But almost always this sort of loan adjusts upward resulting in a larger monthly payment. With an adjustable rate mortgage loan, you will more than likely save money during the first few years by securing a lower rate. But after the initial fixed-rate period, your loan’s interest rate will begin to adjust to keep pace with market conditions usually resulting in a larger monthly payment.

In either case, the adjustable rate mortgage or the fixed rate the percentage charged for the mortgage loan is much less than that found for a personal unsecured loan. This makes sense. With any mortgage loan the house you are buying is the collateral for the loan.

A good mortgage broker can help you decide which type of loan, the fixed rate or the adjustable is right for you.

Second Mortgage

A second mortgage is a secured loan against your house that is subordinate to your first mortgage which registered with the city or county. The second mortgage is called subordinate because if the first and second loans go into default, that is you stop paying them, the first mortgage gets paid off first and then the second. Second mortgages are riskier for lenders and therefore usually come with higher interest rates. Second mortgages are sometimes called home equity loans or home equity lines of credit.

To offer a second mortgage the lender has to be convinced that you can pay back the loan and if not that there is sufficient equity in the house to pay off both the first and the second mortgages. In addition to the amount of equity you have the second mortgage lender will also want to see that you have a low dent to income ratio, a high credit score and a solid employment history.

It’s interesting to note that a property can actually have third and even fourth mortgages but this is very rare.

Car Loan

If you buy a new car or sometimes a used one you may want to get a loan to help you make the purchase. Frequently the dealer from whom you are buying your car can set you up with a loan. But you might want to look around. The dealer does not always have the best terms and payment structure. If you have a credit union you may be able to get pre-approved for a car loan before you even start shopping around. This can work out well since a credit union will probably give you a good interest rate and by having the financing ahead of time you can probably strike a better deal with the auto dealership.