10 Types of Loans You Should Know

Posted on June 10, 2026 by Kayla Harris

Loans of all types provide you with an upfront lump sum payment that you can use as intended or as specified in your loan agreement. Interest applies to the full amount you obtain, and the repayment is made gradually in fixed monthly or bi-weekly installments.

Each payment covers both principal and interest. Initially, a larger share goes toward interest, but over time, your outstanding balance reduces through loan amortization. As the balance serves as the basis for interest calculation, the longer you pay, the greater the portion of payments that covers principal.

Unlike revolving credit, loans do not give you ongoing access to funds. They work best for one-time large purchases, specific needs with set final costs, and consolidating high-interest debts.

Table of Contents

1. Secured vs. Unsecured Loans
2. 10 Common Types of Loans
3. How to Choose the Right Loan Type
4. FAQ

Secured vs. Unsecured Loans

While some loans require you to pledge an asset to get approved, others are only backed by your written promise to repay. Secured loans are those with an extra repayment guarantee in the form of collateral. To qualify, you need to provide a property you already own or the one you purchase with the loan by placing a lien on it. Assets you can pledge include a house, vehicle, equipment, bonds, stocks, crypto holdings, a savings account balance, and more. If you default on a secured loan, the lender has the right to seize collateral to recoup losses.

An unsecured loan is a borrowing option without collateral backing. Instead of pledging your belongings, you need to demonstrate stable income, solid payment history, and overall creditworthiness to get approved. As these loans are riskier for lenders, they usually come with stricter requirements and higher interest rates. If you fail to repay the funds, lenders can charge you extra fees and report your unreliable financial behavior to credit bureaus, which can reduce your credit score.

10 Common Types of Loans

While all loans work similarly, they have distinct features that make them suitable for different situations. Below is a closer look at the main types of loans available on the market.

Personal Loans

A personal loan is a financing option with no specific purpose. The money can be used for almost anything except for certain restrictions set by a particular loan agreement. Loan amounts range from $1,000 to $100,000, depending on the lender, a borrower’s income, and credit. The repayment is made in fixed installments over 12–84 months.

Interest rates on personal loans are fixed, usually between 6% and 36%. No collateral is needed for the loan, but most lenders only accept borrowers with credit scores of at least 580. Favorable terms are typically available to applicants with a score in the 700s.

Auto Loans

These loans are designed specifically for financing a vehicle purchase. The vehicle itself serves as collateral, so interest rates are typically lower compared to standard personal loans. According to the most recent data (February 2026), the average APR on a 60-month new car loan is 7.52%. Interest rates are usually fixed, although some lenders may offer variable ones.

Borrowers can get up to 100% of the car’s price. However, you may be asked to make a down payment of 10%–20%, especially if your credit is poor. The money is transferred directly to the dealership or car seller, not to you. Loan terms generally range from 36 to 72 months.

Student Loans

Student loans help people cover college-related expenses, including tuition, equipment, accommodation, books, extra course materials, and more. These loans are offered by both the federal government and private lenders.

Federal loans are a primary option students turn to. They come with multiple benefits, such as the absence of a credit check for Direct Subsidized and Unsubsidized loans, interest coverage, and payment deferment while at school. On top of that, they are eligible for loan forgiveness and income-based repayment plans. Federal student aid has certain limits, depending on the loan type, dependency status, and year in school. If you max out your limit but still need money to cover educational expenses, private student loans become the next option.

Private loans are provided based on a borrower’s income and credit. Students often need a cosigner to qualify since they are new to credit and have insufficient income. These loans typically accrue interest from disbursement, but most major private lenders offer in-school deferment or reduced ($25 / interest-only) payment options.

Mortgage Loans

A mortgage is a purpose-specific loan provided to purchase real estate. Conventional mortgage lenders usually finance up to 97% of the house’s purchase price, while options backed by the government may offer up to 100% financing. However, you’ll need a down payment of at least 20% to get the home loan without private mortgage insurance.

The 2026 conforming loan limit for a one-unit property is $832,750 in most states, but it can reach $1,249,125 in high-cost counties and states. The house you buy serves as collateral and can be foreclosed upon if you default on your loan.

Mortgages typically have long repayment terms of 10–30 years. Interest rates are primarily fixed, but adjustable-rate mortgages are also available, and their interest rates (and therefore monthly payments) can change over time. Traditional mortgages are not backed by the government, while options like Federal Housing Administration (FHA) loans and Department of Veterans Affairs (VA) loans may be offered to certain borrower categories.

Home Equity Loans

Also known as a second mortgage, a home equity loan is a secured debt that uses the equity you own in your house as a pledge. The equity is calculated as the total cost of your house minus your total liabilities on current mortgages. Most lenders cap your total mortgage debt at 80%–85% of the home’s value (combined loan-to-value), and you can borrow the difference between that cap and your current mortgage balance.

Unlike a conventional mortgage, you can use the funds for any purpose, with the most common ones being home renovations, educational expenses, and medical costs. A home equity loan term can be 5–30 years.

Debt Consolidation Loans

These are one of the types of personal loans used to combine multiple high-interest debts into one with a single, manageable payment. As you obtain the money for a specific purpose, lenders can transfer the money directly to creditors, often at a reduced rate.

Debt consolidation loans allow you to benefit in several ways. First, they simplify repayment. If you have improved your credit since you received your current debts, a lender can also offer you an initially lower APR.

Another benefit is that you can adjust your monthly payments by choosing a shorter or longer repayment period. A shorter term allows you to become debt-free faster but may result in a higher monthly payment, while a longer period makes payments more manageable but involves more interest over the life of the loan. Finally, paying off your high-interest credit card balances without closing the accounts can positively affect your credit utilization, which can help your credit score.

Cosigned Loans

If you have poor or limited credit and do not want to provide collateral as additional security, a cosigned loan is a reasonable alternative. This borrowing option involves more than one individual responsible for the debt. Besides a primary borrower, there’s a cosigner who cannot own the purchased asset or access the money but will be required to make payments if the main borrower fails to repay.

Late payments and defaults can affect both a borrower and a cosigner. Lenders may charge extra fees, use collection methods, and report information to the credit bureaus, which will be reflected in both credit reports.

Credit-Builder Loans

A credit-builder loan has one key feature that differentiates it from other loan types. With this product, you do not receive the money right after approval. Instead, you need to make upfront monthly payments, while a lender keeps the loan amount in a separate savings account. Once you repay the loan in full, you get access to the funds.

This option is designed specifically to improve credit or build it from scratch. Each on-time payment is reported to credit bureaus, helping your score grow over time. On top of that, credit-builder loans offer savings potential because the borrowed amount is inaccessible while paying off the loan.

Small Business Loans

Small business loans are products partially guaranteed by the U.S. Small Business Administration and issued by SBA partner lenders across the country. As the name suggests, they are designed specifically for various business purposes. SBA loan sizes depend on the program: Microloans go up to $50,000, 7(a) loans up to $5 million, and 504 loans up to $5 million (or $5.5 million for certain manufacturing and energy projects). Entrepreneurs can get funding for a wide range of needs, from seasonal expenses, remodeling, and debt refinancing to buying equipment, real estate, or furniture.

SBA partner lenders evaluate both the business (cash flow, time in operation, business credit) and the owners personally — personal credit scores, financial statements, and personal guarantees from owners with 20%+ stake are typically required.

Payday Loans

Payday loans are short-term loans people use for small financial emergencies. These products come with amounts from $100 to $1,000 and need to be repaid in 14–30 days — after a borrower receives their next paycheck.

Although payday loans are easy to get due to the absence of a hard credit check, they come with risks associated with a high cost and short repayment period. Lenders typically charge a fee of $10 to $30 for each $100 borrowed. Although it may seem reasonable, this fee often converts to an APR over 400%.

Each state has its own regulations regarding payday lenders. Some states set restrictions and limit maximum amounts and charges, while others can ban them completely. Before applying for a payday loan, consider cheaper alternatives, such as payday alternative loans or cash advance apps.

How to Choose the Right Loan Type

There are many factors to consider before deciding on which loan option will suit your situation best. Here’s what you need to look at before taking on debt:

• What you need the money for. Your loan purpose may be a major determining factor, especially if you need funds for something specific, such as a car, a house, or education. Purpose-specific loans usually offer beneficial features, lower interest rates, and limits and terms that match the purchase or service cost.
• Your credit score. Borrowers with good to excellent credit can access almost any loan, provided they have sufficient income. If your credit score is fair or poor, traditional financing may not be the best choice for you, especially if you need an unsecured loan.
• Whether you are ready to provide collateral. Some loan products may be a perfect fit for you in terms of limits and repayment options. However, they may require you to pledge your valuable assets to get the money. Make sure you are comfortable with it and have a solid repayment plan so you don’t lose the property.
• When you need the money. Some loans come with faster approval and disbursement times than others. If you need the money quickly, look for unsecured options. They do not require collateral assessment and can be transferred to you within 1–3 business days.
• What other lenders offer. Even if you choose a particular loan type, keep in mind that they do not work the same. Terms may vary widely by lender, so it’s a smart move to pre-qualify with multiple loan providers and compare their offers. Pay special attention to APR, fees, and the repayment terms.

FAQ

What are the main types of loans?

When classified based on security, the two main types of loans are secured and unsecured loans. The most commonly used options across both categories include mortgages, auto loans, student loans, personal loans, home equity loans, and debt consolidation loans.

What is the difference between a secured and an unsecured loan?

A secured loan is a type of borrowing provided against your valuable asset, such as a house, a car, or a savings account balance. Unsecured loans require no collateral, and therefore have higher APRs and stricter credit score and income requirements.

Which type of loan has the lowest interest rate?

A mortgage typically has the lowest APR, with an average of 6.51% on May 21, 2026. Among all credit products, credit cards with 0% APR promotional periods are considered the cheapest, provided that you repay the funds before the period ends.

What type of loan is the easiest to get?

Payday loans are considered the easiest to get. Payday lenders usually do not perform hard credit checks and only assess a borrower’s income when determining their eligibility. However, these loans are very expensive and should be considered cautiously.