Americansand the worddebtoften seem like they go hand-in-hand.
And for good reason.
U.S. household debt hit an astonishing and record-breaking $14.6 trillion in 2021,according to Debt.org.
Check out our comparison ofstudent loan interest ratesfor federal and private student loans.
Granted, this high total was partially influenced by the pandemic.
And this figure istotaldebt, which includes non-loan amounts like money owed on credit cards.
But, if used wisely, debt can be a tool.
In this article, well discuss loans, the different types and how they work.
What Is a Loan?
A loan is an amount of money a person borrows from a person or company.
The entity lending the money the lender disperses the loan amount to the borrower or payee.
Loans come with interest rates and a set number of years the borrower has to pay it back.
(Although you might shop multiple lenders and find one to work with you and your situation.)
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Whats a Loan Interest Rate?
Interest rates refer to the amount of money you pay on top of the loan amount you borrowed.
This fee is imposed by the lender; its how they make money off the loan.
Whats a Loan Term?
Loan terms refer to the length of time a borrower has to pay back a loan.
Its important to stop here and state that borrowing money comes with risks.
For this article, were going to concentrate on six major types of loans.
(Unless otherwise specified, variable and fixed rates apply for each pop in.)
However, rates can also vary a lot for these loans and creep into the double digits.
Student Loan
Student loans are used to pay for education expenses.
Depending on the pop in of student loan and its conditions, you might or might not qualify.
Private student loans, which are offered through banks and online lenders, typically have higher interest rates.
Depending on the throw in of loan you get, interest rates will vary.
The current rate for a 30-year, fixed-rate conventional loan is hovering around 5%.
Auto Loan
Auto loans go toward the purchase of a car or other automobile.
To jump off that point, many online lenders, brick-and-mortar banks and credit unions offer car loans.
These loans are repaid via a borrowers next payday, hence the name.
For instance, you’re free to usually get approved for a personal loan within a week.
How to Qualify for a Loan
Again, certain loans have more strict requirements to get lending.
Loans are paid back monthly from the borrower to the lender.
When you start paying a loan back depends on the loan key in and terms.
On the contrary, youll start paying an auto or house loan in monthly installments right away.
Check your loan terms for information on your particular agreement.
For reference, there are no prepayment penalties when paying off education loans early,according to FinAid.org.
You have good credit and decide to go with your current bank to secure the funds quickly.
The timeframe when you start paying back a personal loan depends on the loans terms and conditions.
But, youll likely start paying back a personal loan within 30 days after you receive your money.
She owns a content-writing business and her work has appeared in U.S. News, Clark.com and Well Kept Wallet.
Probably not as good as youd like.
It always seems like an uphill battle to build (and keep) a decent amount in savings.
But what if your car breaks down, or you have a sudden medical bill?
Ask one of these companies to help…
