With an installment loan, you pay an agreed amount, which includes principal and interest, every month. Each payment reduces the balance of the loan until it is paid off. There is a fixed ending date, known as the term of the loan.

Unsecured loans are not backed by any collateral. You borrow money on the strength of your good credit and ability to repay alone.

When the Prime Rate is low, such as when the government is trying to stimulate the economy during a recession, you save on interest. If you need to borrow during a period of high interest, your payments will drop once the Prime Rate drops.

Fixed vs. Adjustable Interest Rate Loans

Installment and revolving describe the amount of time you have to pay back a loan. With a revolving loan, you have access to a continuous source of credit, up to your credit limit.

Essentially, there are two types of loans: unsecured loans and secured loans. Secured loans are loans in which you pledge some sort of collateral. When you took out the loan, the bank may repossess the collateral if you do not repay the loan according to the terms you agreed to.

Revolving vs. Installment Loans

Unsecured vs. secure Loans

Fixed interest is just that. You and the bank agree to a certain interest rate and it remains constant throughout the term of the loan. Fixed interest rates give you the stability of always knowing what your payment will be, so you can budget accordingly.

Types Of Loans

Student Loan (Stafford Loan) A loan for college expenses underwritten by the U.S. Government. The loan is granted to the student. Payment is deferred while the student is still in school.

Personal Loans: Unsecured or secured loans made for a fixed purpose.

Essentially, there are two types of loans: unsecured loans and secured loans. Secured loans are loans in which you pledge some sort of collateral. Home Equity Loan: A secured loan for a fixed amount in which the collateral is your home. Home Improvement Loan: A secured loan for a lump sum fixed amount in which the collateral is your home. Student Loan (Stafford Loan) A loan for college expenses underwritten by the U.S. Government.

Credit Cards: An unsecured loan which allows you a line of credit against which you may borrow by presenting a plastic card to the merchant from whom you are purchasing the item. You may make more than one purchase, up to your credit limit.

Mortgages: A secured loan in which the collateral is the real estate you buy.

Personal Line of Credit: Unsecured loans allowing you access to funds up to a fixed credit limit.

Home Improvement Loan: A secured loan for a lump sum fixed amount in which the collateral is your home. The interest on this loan may be tax deductible. (In some areas of the country, a home improvement loan “secured by the equity in your home” may not be available.

Home Equity Loan: A secured loan for a fixed amount in which the collateral is your home. In some cases, the interest on this loan may be tax deductible. See your accountant.

Home Equity Credit Line: A secured, revolving line of credit in which the collateral is your home. In some cases, the interest on this loan or a portion of it may be tax deductible. Consult a tax professional or your accountant.

Auto Loans: A secured loan in which the collateral is the vehicle you purchase.

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