Whether you’re buying a home, a car or paying for college, there’s a loan for that. If you don’t have enough money saved up to cover one of these expenses, you can take out a loan and make monthly payments over a set period of time to cover your costs. Here’s everything you need to know before you sign on the dotted line…
1. Personal loans
What are they? Personal loans are used to cover everything from vacations and weddings to medical expenses and home renovations.
There are two types of personal loans: secured and unsecured. Secured personal loans are backed by collateral that a lender can take back if you don’t make payments. Unsecured personal loans are not backed by collateral and typically have a higher interest rate and level of risk.
Repayment terms: 1 to 5 years, but typically 12-24 months
Interest rates: Varies based on credit score, but average is around 11%
2. Student loans
What are they? Student loans can help you pay for tuition, fees and expenses at accredited schools. There are federal student loans and private student loans. Federal loans typically have higher interest rates but offer more protections and benefits.
Repayment terms: Between 5 and 25 years depending on your repayment plan and loan type. Most repayments begin after graduation, but you can make payments while you’re in school to help save money in the long run when it comes to interest.
Interest rates: Federal loan rates are 4.99% for 2022-2023; Private rates vary by lender and credit score.
3. Auto loans
What are they? Auto loans are a secured loan used to purchase a vehicle. The collateral is the vehicle, so if you don’t make payments, the lender can take your car. You can finance through a dealership, bank or credit union, so it’s a smart idea to shop around for the best rates.
Repayment terms: Anywhere from 2 to 7 years
Interest rates: Can start as low as 0.00% depending on your credit score; the average for a new car in 2022 is 4.07%
4. Mortgage loans
What are they? Also known as a home loan, mortgage loans are used to help in the purchasing of a new home. There are a number of loan types depending on what type of borrow you are (ie. a first-time home buyer) as well as government-backed programs.
Repayment terms: Typically 15-30 years
Interest rates: Rates have been increasing in 2022, with the average at 7.02% as of mid-October
5. Home equity loans
What are they? Home equity loans, or a second mortgage, can be used when you have equity in your home. You can borrow up to 85% of your home’s equity (the portion you own, not the bank), which is then paid out as a lump sum.
Repayment terms: 5 to 30 years
Interest rates: 7.22% as of October 2022
6. Debt consolidation loans
What are they? Debt consolidation loans are used to streamline monthly payments. The lender will convert your debts into one loan payment, typically with a fixed interest rate for a set period of time. If you have multiple high-interest debts, you might benefit from this type of loan which can result in a lower interest rate and lower monthly payment. You can learn more about debt consolidation here.
Repayment terms: Typically 12 to 24 months
Interest rates: Varies based on type of debt and credit score
7. Payday loans
What are they? Payday loans are short-term loans that come with extremely high finance fees, often leading to debt. The term usually lasts until your next paycheck, hence the name. It’s best to avoid this type of loan because of the risk and associated fees. If you’re in need of some extra funds to get you from one paycheck to the next, consider Brigit Instant Cash. You can get up to $250 cash with no interest, no fees, and no credit check. Learn more here.
Repayment terms: 7 to 120 days
Interest rates: Without Brigit: Up to 400% with fees