There are numerous types of loans available depending on their intended function. However, these loans fall into two broad categories of either open-ended or close-ended loan. Open-ended loans, also known as revolving credit, are by far the most popular category. These are typically preferred by consumers as they allow them to make repeated purchases, and are payable at the end of every month, although they do not have to pay in full. An example of an open-ended loan is a credit card. Close-ended loans, on the other hand, are meant to finance a venture over a specific and pre-agreed duration. They are repaid in installments made throughout the duration. Depending on your needs and specific circumstances, you could either opt for open-ended or close-ended loans.
Credit Card Loans
Credit card loans, as mentioned before, are a type of open-ended loan. It allows you to make regular purchases like shopping for groceries and perhaps paying your utility bills. There are regulations that protect consumers taking out credit card loans on aspects such as exorbitant interest rates. Only take out credit card loans to cover small purchases. Never use a credit card to cover large expenses such as your mortgage payments. Doing that will not only leave you in debt, and risk giving you a bad credit history.
Mortgage Loans On Homes And Property
If you want to buy a home, take advantage of mortgage loans that are offered by numerous lenders. Mortgages fall under the close-ended loans. Mortgages specifically cover home financing. The lender usually pays for a percentage of the home’s asking price after you pay an initial deposit to the seller. You will have to make frequent payments over the duration of the mortgage. Additionally, defaulting on your mortgage loan may lead to the lender seizing your home. However, you can take out a second mortgage on your home to make renovations or finance other ventures.
Car Specific Loans
Car loans are specifically tailored and meant for purchasing automobiles. Lenders consequently extend loans to the preferred car dealership offering the particular car model the loan applicant desires. These are close-ended loans in that the loan applicant is required to make regular repayments in the form of monthly instalments. Defaulting on car loans gives the lender ownership of the vehicle. Therefore, when you take out a car loan, make sure you have the means to meet the monthly instalments to avoid repossession.
Use credit card loans to pay for small purchases
Mortgage loans are the most suitable close-ended loans for people looking to buy a house
Car loans facilitate the acquisition of a new vehicle
What Type of Loan Should I Pick?
There are numerous types of loans available depending on their intended function. However, these loans fall into two broad categories of either open-ended or close-ended loan. Open-ended loans, also known as revolving credit, are by far the most popular category. These are typically preferred by consumers as they allow them to make repeated purchases, and are payable at the end of every month, although they do not have to pay in full. An example of an open-ended loan is a credit card. Close-ended loans, on the other hand, are meant to finance a venture over a specific and pre-agreed duration. They are repaid in installments made throughout the duration. Depending on your needs and specific circumstances, you could either opt for open-ended or close-ended loans.
Credit Card Loans
Credit card loans, as mentioned before, are a type of open-ended loan. It allows you to make regular purchases like shopping for groceries and perhaps paying your utility bills. There are regulations that protect consumers taking out credit card loans on aspects such as exorbitant interest rates. Only take out credit card loans to cover small purchases. Never use a credit card to cover large expenses such as your mortgage payments. Doing that will not only leave you in debt, and risk giving you a bad credit history.
Mortgage Loans On Homes And Property
If you want to buy a home, take advantage of mortgage loans that are offered by numerous lenders. Mortgages fall under the close-ended loans. Mortgages specifically cover home financing. The lender usually pays for a percentage of the home’s asking price after you pay an initial deposit to the seller. You will have to make frequent payments over the duration of the mortgage. Additionally, defaulting on your mortgage loan may lead to the lender seizing your home. However, you can take out a second mortgage on your home to make renovations or finance other ventures.
Car Specific Loans
Car loans are specifically tailored and meant for purchasing automobiles. Lenders consequently extend loans to the preferred car dealership offering the particular car model the loan applicant desires. These are close-ended loans in that the loan applicant is required to make regular repayments in the form of monthly instalments. Defaulting on car loans gives the lender ownership of the vehicle. Therefore, when you take out a car loan, make sure you have the means to meet the monthly instalments to avoid repossession.