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From home loans to debt consolidation, explore the wide variety of loan terms and learn how each term can affect your financial future.

What Are Loans?

Loans are a way to borrow money from a lender to purchase an item, such as a house or a car, or to pay for a specific task, such as consolidating debt. People use loans every day to finance major purchases, education expenses, and basic living necessities.

Types of Loans

Lenders offer a variety of loan products for consumers to choose from, such as:

· Personal Loans
Use this type of loan for anything that is not related to home or auto; these include educational needs and consolidating debt.

· Home Loans
Lenders offer a variety of loan products for people who want to purchase or refinance homes; including fixed-rate and adjustable-rate mortgages (ARMs).

· Auto Loans
Use this type of loan when purchasing cars, trucks, and other motorized vehicles.

· Student Loans
Access loans to finance education expenses such as degree programs, certificates, trade colleges, or technical schools.

· Business Loans
Lenders offer commercial loans for businesses to purchase equipment and supplies, upgrade facilities, and more.

How Do Loans Affect Your Credit?

Consumers may use different types of loans at any given time because lenders consider these loans when determining people's credit scores; in other words, a person's credit score may change based on the type of loan they have.

For example, a borrower might have a five-year personal loan and a 10-year mortgage to pay for two different homes. The lender will consider both loans when deciding whether to approve the consumer for additional loans or other financial products, such as car insurance.

Use Loan Calculator to explore different loan options and learn how each one can affect your finances.

4 Tips for Understanding Loans

1. Lenders offer loans to consumers who have established their credit scores, which are updated monthly by the three major credit bureaus—Equifax, Experian, and TransUnion.

2. A person's credit score is a number that represents their level of financial responsibility; lenders may check this number before approving the consumer for a loan.

3. Lenders may require borrowers to have certain credit score minimums before approving them for specific types of loans, such as mortgages, auto loans, and student loans.

4. Borrowers can improve their credit scores by using different types of loans at any given time to show lenders that they are responsible for borrowing and repaying the money.

Conclusion

Loans are a way to borrow money from a lender to purchase an item, such as a home or car, or to pay for a specific task, such as debt consolidation. Lenders offer many different types of loans for consumers to choose from, including personal loans and home loans. Loans affect credit scores because lenders consider these loans when determining people's credit scores.