Types of credit and what you can buy on them

There are a lot of different credit types available. Customers can buy anything on the borroed money. But rates, repayment terms and other conditions will vary according to the loan type.

What are tdifferent loans? 

Target loans

The bank provides funds for specific needs. In most cases, you do not even see the money: the credit institution immediately transfers it to the seller. When it comes to large loans, the bank may request a security deposit and down payment.

Mortgage credit lending

This type of loan is often simply called a mortgage, but this is not entirely true. Mortgage is a form of collateral in which the debtor owns and uses the property, but the lender can sell it if the obligations under the loan agreement are violated. One of the most common forms of mortgage lending is the purchase of a real estate object on credit, which will be the key.

The mortgage is characterized by a long term loan and a relatively low interest rate.

With the help of mortgage lending you can purchase:

• an apartment in a new building or in the secondary market;
• house;
• land plot;
• cottage;
• garage;
• company.

And this list of objects for mortgage is not limited. For example, you can take a loan to build a house, laying the land or the right to rent it.

Car loan, Auto Title Loan

This is a special loan for the purchase of a vehicle, in which the car remains pledged to the bank.  Thanks to insurance and pledge, the bank can offer a not very high interest rate.

Student loan

The purpose of the loan is clear from the title: the money goes to pay for education, and usually we are talking about universities. However, lending conditions can vary dramatically.

Some banks give loans to students. In this case, during study, the debtor pays only interest on the use of money, he will begin to return the principal debt after receiving the diploma.

Some financial institutions prefer not to take risks and set the lower bar for the age of the borrower. For example, it may be 21 years. In this case, it is assumed that the loan will be taken by the parents of the applicant or he himself is already firmly on his feet, since yesterday's graduate of the school does not fit the conditions.

Targeted consumer loans

This group of loans includes loans for the purchase of household appliances, travel vouchers, construction operations, and medical services. If you buy a fur coat on credit in a fur shop, it also fits into this item.

Usually amounts are small and no deposit is required. Conditions largely depend on what the store has agreed with the bank.

Installment in this case is also a type of target loan. Just a trading institution sells the goods to the bank cheaper than you, and the difference then goes to the income of the financial institution as a percentage.

Refinancing

Refinancing a loan is getting a new loan from another bank on more favorable terms to pay off the old one. In essence, a financial institution entices a client from a competitor. It extinguishes your loan to another bank ahead of schedule, and then you pay the new creditor both the principal debt and the updated interest. You get a lower rate, a financial institution - your money.

General-purpose loans

General purpose consumer loans

You just take the amount you need in the bank and spend it at your discretion. But since the bank does not receive collateral and cannot control your spending, it insures its risks with higher interest on such loans. Payday Loans, Installment Loans, Personal Loans fall into this kind of credit. You can use them for any purpose you need.

There are general purpose loans that are disguised as targeted ones. You request money for specific expenses, and the bank takes this into account when approving a loan. However, in fact, the institution cannot control you. 

Any microloans

Small amounts that are issued to the client almost without checking his integrity and with a minimum of documents. But the interest rate on these conditions offer extremely high. Because of this, previously, if a person failed to pay, the debt of a person who applied to a microfinance organization could grow tenfold over a year.

Usually such loans are used by people who are unable to obtain a loan at a bank on acceptable terms.

Credit cards

You can borrow a limited amount from the bank and return it whenever possible. For cards, there is a grace period when interest on the use of money from a credit card is not charged.

Which loan to choose.  

For a start, it’s worth deciding whether you need a loan at all. Most financial experts do not recommend taking loans of two types:

In stores for the purchase of goods - furniture, electronics and so on. It will be easier and cheaper to save up in order to avoid a very large overpayment for the goods.
Mortgage loans to microfinance companies due to huge interest rates.

Other forms of loans have their pros and cons. For example, mortgage and car loans make sense when you really need a large amount for a long enough period. For such loans, you can apply for benefits from the state, the developer or car dealer. But you will not be able to dispose of the property, so if you need a relatively small amount, then you should look at the conditions for non-earmarked and unsecured loans.

Carefully study the market. It is not necessary to bypass all the banks in order to find out the conditions; you can look at them on the websites of financial institutions or in special aggregators such as COMPACOM.com.