| > | | | | economy during a recession, you save on interest. If |
| Essentially, there are two types of loans: secured | | | | you need to borrow during a period of high interest, |
| loans and unsecured loans. Secured loans are loans in | | | | your payments will drop once the Prime Rate drops. |
| which you pledge some sort of collateral. The bank | | | | Types Of Loans |
| may repossess the collateral if you do not repay the | | | | Auto Loans: A secured loan in which the collateral is |
| loan according to the terms you agreed to when you | | | | the vehicle you purchase. |
| took out the loan. Unsecured loans are not backed by | | | | Credit Cards: An unsecured loan which allows you a |
| any collateral. You borrow money on the strength of | | | | line of credit against which you may borrow by |
| your good credit and ability to repay alone. | | | | presenting a plastic card to the merchant from whom |
| Revolving vs. Installment Loans | | | | you are purchasing the item. You may make more |
| Revolving and installment describe the amount of time | | | | than one purchase, up to your credit limit. |
| you have to pay back a loan. With a revolving loan, | | | | Personal Loans: Secured or unsecured loans made for |
| you have access to a continuous source of credit, up | | | | a fixed purpose. |
| to your credit limit. You repay only the amount of the | | | | Mortgages: A secured loan in which the collateral is the |
| credit you use, plus interest on the unpaid amount. You | | | | real estate you buy. |
| may re-borrow the principal you've repaid. So the loan | | | | Home Equity Loan: A secured loan for a fixed amount |
| could remain "open" for years. | | | | in which the collateral is your home. In some cases, the |
| With an installment loan, you pay an agreed amount, | | | | interest on this loan may be tax deductible. See your |
| which includes principal and interest, every month. Each | | | | accountant. |
| payment reduces the balance of the loan until it is paid | | | | Home Equity Credit Line: A secured, revolving line of |
| off. There is a fixed ending date, known as the term | | | | credit in which the collateral is your home. In some |
| of the loan. | | | | cases, the interest on this loan or a portion of it may |
| Fixed vs. Adjustable Interest Rate Loans | | | | be tax deductible. Consult a tax professional or your |
| Fixed interest is just that. You and the bank agree to a | | | | accountant. |
| certain interest rate and it remains constant throughout | | | | Home Improvement Loan: A secured loan for a lump |
| the term of the loan. Fixed interest rates give you the | | | | sum fixed amount in which the collateral is your home. |
| stability of always knowing what your payment will be, | | | | The money may only be spent on home |
| so you can budget accordingly. | | | | improvements. The interest on this loan may be tax |
| Adjustable or variable rate interest fluctuates. Usually it | | | | deductible. Consult a tax professional or your |
| is pegged to the Prime Rate - the interest the U.S. | | | | accountant. (In some areas of the country, a home |
| Treasury charges to its best borrowers. When the | | | | improvement loan "secured by the equity in your |
| Prime Rate is high, such as during a period of inflation, | | | | home" may not be available. In these areas, an |
| you pay more. When the Prime Rate is low, such as | | | | unsecured home improvement loan would be available. |
| when the government is trying to stimulate the | | | | |