Types of loans

In theory, virtually anyone can lend you money, from an uncle or employer to financial companies. In practice, you could get a better deal if your choice of lender is based on your reason for wanting the money.

For a specific purpose
Some lenders will extend credit only if you'll use the money in I that further their business. To them, the top consideration may he the purpose of the loan; second, whether you're pledging the purchased product as security to protect them; and third, the quality of your credit rating.

Seller financing. To make selling their products easier, many department stores, retail chains, and ear dealerships serve as middlemen for lines of credit just as they do for the products they sell. They don't lend you the money to buy their products; they arrange loans from other lenders. For example, a store or car dealer may get you a loan from a finance company and receive a commission for the deal. In effect, they sell you a product, then sell you a loan to pay for that product.
You often have to pledge the property you're buying as security, in case you fail to repay the loan. The finance company legally owns the product (e.g., your car) until you repay the loan, and it has the right to repossess if you fail to make payments on tune.

Special interest financing. Mortgage lenders don't sell homes, but they'll lend money only if it's used to buy a home. The money they have to lend has been earmarked for home loans and is priced accordingly. Also, since home loan’s are large amounts, lenders need to have a security interest in property of equal or greater value: namely, your home.

Lenders of student loans also insist you use the money for this specific purpose. Since you're buying an education, however, there's no tangible property for you to pledge as security. That's why many student loans are government guaranteed to encourage banks to lend.

For any purpose
Some lenders extend credit without requiring you to specify how you'll use the money. Their first consideration is whether you're pledging all asset as security; second, the quality of your credit rating; and third if considered at all), your purpose for the loan. Here are some examples:

Asset-based loan. A bank, securities broker, or insurance company may let you borrow against the value of your insurance, home, or investments if your property has enough value. typically, these loans have lower interest rates than conventional loans. The lender reasons that if you own these assets, you've already exhibited financial responsibility and credibility. You're also protecting the tender by pledging assets of sufficient value to cover the loan in case you default.

Line of credit. This type of loan is a very useful tool in today's world although it's tempting to use it indiscriminately. You're given a credit limit (a maximum amount you can borrow). Then you're free to borrow up to that limit at any time for any purpose. Credit cards are the most common example, but home equity loans can also he lines of credit. Many banks offer lines of credit and use your checking or savings account as security.

Personal loan. You may get a loan on the strength of your name, or be asked to pledge an asset as security

Pawning. Pawnbrokers lend money to anyone without checking credit. You bring in something of value, the broker lends you a small percentage of the item's value and holds the item for an agreed period of time. You can pay off the loan within that time and reclaim your property, but if you don't, the broker can sell it. Interest on these loans tends to he high. You may also have to pay for insurance and storage.

Credit unions. A non profit alternative to banks, credit unions are run for and by their members. Some are open to the public but most are sponsored by an employer, association, university, or government, and are open only to members or employees and their families. Loans are made from money deposited by members. Generally, rates are lower than for bank loans.

Private finance companies. Often open to lending to people with poor credit records, these companies offset the increased risk by charging much higher rates. In other words, one of the downsides of having poor credit is you have to be willing to pay a lot more for a loan in order to convince someone to lend you money. (The companies-and the terms they offer-can range from reputable to very questionable.)

Note:
Mutual support. Some retailers and lenders are owned by the same, larger company (e.g., Sears and General Motors), and support each other. For example, if the retailer needs to boost sales, the finance company may offer low-cost loans "for a limited time only." In any case, financing your purchase through the retailer means the larger company earns you as a customer twice; once for the product, and again for the loan.