Understanding Different Loan Types
                     Understanding 
Different Loan 
Types
Personal loan
Personal loans can be used for a variety of expenses, and 
they can go by various names (see types of personal loans, 
below).
Though many of them work similarly, lenders may give 
them specific, purpose-driven titles and offer varying terms 
depending on each purpose.
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Mortgage
A mortgage, also known as a home loan, allows you to 
borrow to finance what is likely to be the biggest purchase 
of your lifetime. There are various types of mortgages for 
different borrowers, including first-time home buyers and 
military veterans. 
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Student loan
Most new and outstanding student loans in the U.S. are 
federal loans, meaning they are held and managed by the 
Department of Education. Millions of families have also 
relied on private or alternative student loans to bridge any 
remaining gap in their school’s cost of attendance. 
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Auto loan
Borrowing money to pay for an asset that quickly and 
continuously depreciates in value isn’t ideal. But if you 
need wheels, an auto loan could be your best remaining 
option. You could shop around with financial institutions as 
well as car companies and dealerships.
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Payday loan
A payday loan is designed to advance your wages. You 
might be tempted to borrow a payday loan to cover an 
unforeseen expense before your paycheck hits your 
checking account. Payday loans are typically considered 
predatory debt, however, because of the short repayment 
periods and often triple-digit APRs, not to mention fees.
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Pawn shop loan
Perhaps the most traditional form of a secured loan, a 
pawn shop loan involves yielding a piece of property (such 
as jewelry or high-priced electronics) for short-term cash. 
When the borrower repays their debt on or ahead of 
schedule, the shop owner returns the property. 
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Small business 
loan
If you’re an entrepreneur or small business owner, you 
might borrow to fund your next big idea or simply maintain 
operations. Like with many of the other types of loans on 
this list, small businesses loans are available from banks, 
credit unions and online lenders. 
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 Credit builder 
loan
A credit builder loan is intended to help you do just that — 
build your credit. Whether you’re trying to establish a 
credit history or repair one that has been less-than-stellar, 
a credit builder loan gives you the opportunity to show 
lenders that you are a responsible borrower by making 
timely payments on the loan.
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Debt consolidation 
loan
Debt consolidation loans allow you to roll multiple debts 
into one with a new interest rate and repayment term. The 
key perks to a debt consolidation can include:
→ Repaying your debt with a lower interest rate
→ Shortening or extending the amount of time you’re in debt
→ Getting a fixed interest rate when you may have had a variable rate
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Holiday loan
Holidays are typically joyful times, but they can also be 
expensive. There are gifts to buy, festivities to attend and 
a host of other holiday happenings that can add up and 
create stress.
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