Types of Bank Loans

by HomeLoan.com
A loan is a financial agreement, commonly between two people, where one party agrees to provide the other with a fixed amount of money for a fixed amount of time. When a bank is the financial institution providing the loan, the party in need of the money is referred to as the borrower and the bank is known as the lender. Seeking a loan from a bank is commonplace, and there are numerous reasons why a borrower will apply for one.

A loan is a financial agreement, commonly between two people, where one party agrees to provide the other with a fixed amount of money for a fixed amount of time. When a bank is the financial institution providing the loan, the party in need of the money is referred to as the borrower and the bank is known as the lender. Seeking a loan from a bank is commonplace, and there are numerous reasons why a borrower will apply for one.

Mortgage Loan

Homeownership is part of the American Dream, but most homeowners are unable to buy their home outright. In most cases, they will need to take out a mortgage, which is a secured loan. This means the home will serve as collateral for the outstanding mortgage debt, so if the borrower fails to meet the mortgage payments for some reason, the bank can repossess the home. A traditional mortgage loan is commonly taken out for a period of 15 to 30 years and will require a 20 percent down payment. A mortgage loan can be obtained at banks, mortgage companies, credit unions and other financial institutions.

Home-Equity Loan

After a borrower has owned his home for a while, he will accumulate equity, or a portion of ownership. Home equity is the amount of money that the homeowner has paid against his home. The more mortgage payments the homeowner makes, the more equity he builds. A home equity loan from the bank allows the homeowner to borrow against his equity. It works like a second mortgage because the home will serve as collateral. Home equity loans are commonly used for home renovations, purchasing a second home, investing in a business or funding a child's college education. Home equity loans tend to be attractive to a homeowner because they have low interest rates and are tax-deductible.

Auto Loan

Unless you live in a metropolitan area where public transportation is abundant and available around the clock, you will need a car. Purchasing a car often requires an auto loan. The loan will be secured, with the vehicle acting as collateral. If the borrower fails to make the payments, the bank can repossess the car. Personal loans to purchase vehicles can be obtained at banks, credit unions and other financial institutions.

Personal Loan

A personal loan from a bank can be obtained by an individual or a couple. The dollar amounts vary, as well as the reasons for needing the loan. One borrower may want to pay off outstanding credit card debt, while another may need the money to start a business. Some personal loans do not require collateral and have a fixed interest rate, according to CreditCards.com.


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