A consumer loan is when a person borrows money from a lender, either unsecured or secured. There are several types of consumer loans and some of the most popular ones include mortgages, refinances, home equity lines of credit, credit cards, auto loans, student loans, and personal loans.
As evidenced, consumer loans are used to finance expenditures specific to a consumer's needs or wants. They typically come with interest rates (that vary depending on the type of consumer loan) as well as agreed upon repayment periods.
Types of Consumer Loans
Mortgages are loans people use to purchase homes. There are many different types of mortgages from conventional to FHA mortgages, but the goal is the same: to enable consumers to purchase homes. Typically, people who take our mortgages have good credit and a down payment saved before buying a house using a mortgage, although the type of mortgage loan will dictate just how much of a down payment you need as well as whether or not you can be accepted with your credit score.
Credit cards are perhaps the most popular consumer loan. Credit cards enable borrowers to make everyday purchases from clothing to coffee using the credit line granted to them by the credit card company. Although they are the most accessible in terms of qualification, credit cards also carry some of the highest interest rates and penalties out of the consumer loans on this list.
Auto loans are loans used to buy a vehicle. You can get an auto loan from your local credit union or bank, or you can use a loan offered to you at the dealership where you buy the car.
Student loans are loans used by people to pay for college predominantly, but they can also be used to pay for technical schools as well. It's very simple to apply for a student loan and get one, even if you have a low or no credit score.
You can use a refinance loan to refinance your car, house, student loan, or even credit cards. A refinance loan will essentially pay off your loan and create a new one with a fixed payment, and hopefully a lower interest rate, which can save you money on interest payments over time.
Home Equity Loans
A home equity loan is where you can "pull out" or use the equity you have built up in your home to borrow money. So, if you have $10,000 of equity in your home, you can often benefit from that equity in the form of a loan. Typically, people use home equity loans to make improvements to their homes, but you can use it for many other purposes as well.
Personal loans are typically unsecured loans that consumers can use for a variety of different purchases. Unlike mortgages or car loans, which are used to specifically buy houses and cars, someone can use personal loans to do just about anything, from improving their homes to investing in a small business. Personal loans typically have fixed payments and lower interest rates than other types of consumer loans, like credit cards.
What Are Consumer Loans Used For?
As evidenced, consumer loans are typically used for financing some of life's biggest goals. Consumer loans can help fund your education, your car purchase, and your home. Consumer loans also enable people to reduce their debt through consolidation loans. By refinancing a loan to a lower interest rate, people can get out of debt much faster. Additionally, through personal loans, borrowers can finance unique experiences like traveling to study abroad or pay for home improvements. Essentially, you can use a consumer loan for just about anything if you need help financing it.