Loan contracts come in all kinds of forms and with varied terms, ranging from simple promissory notes between friends and family members to more complex loans like mortgage, auto, payday and student loans
Types Of credit:
Open End Credit:
Open-end credit, better known as revolving credit, can be used repeatedly for purchases that will be paid back monthly, though paying the full amount due every month is not required. The most common form of revolving credit are credit cards, but home equity loans and home equity lines of credit (HELOC) also fall in this category.
Credit cards are used for daily expenses, such as food, clothing, transportation and small home repairs. Interest charges are applied when the monthly balance is not paid in full.
Close End Credit
Closed-end credit is used to finance a specific purpose for a specific period of time. They also are called installment loans because consumers are required to follow a regular payment schedule (usually monthly) that includes interest charges, until the principal is paid off.
The interest rate for installment loans varies by lender and is tied closely to the consumer’s credit score. The lending institution can seize the consumer’s property as compensation if the consumer defaults on the loan.
Types of Credit Loans
Student loans are offered to college students and their families to help cover the cost of higher education. There are two main types: federal student loans and
private student loans. Federally funded loans are better, as they typically come with lower interest rates and more borrower-friendly repayment terms.
Like mortgages, auto loans are tied to your property. They can help you afford a vehicle, but you risk losing the car if you miss payments. This type of loan may be distributed by a bank or by the car dealership directly but you should understand that while loans from the dealership may be more convenient, they often carry higher interest rates and ultimately cost more overall.
Personal loans can be used for any personal expenses and don’t have a designated purpose. This makes them an attractive option for people with outstanding debts, such as credit card debt, who want to reduce their interest rates by transferring balances. Like other loans, personal loan terms depend on your credit history.
Small business loans are granted to entrepreneurs and aspiring entrepreneurs to help them start or expand a business. The best source of small business loans is the U.S. Small Business Administration (SBA), which offers a variety of options depending on each business’s needs.