Banks offer a wide variety of loans. They offer mortgage loans, auto loans, personal loans, business loans and home improvement loans. Depending on what type of loan you are trying to acquire there are some general terms that you need to understand.
APR- Annual percentage rate. The APR is based on the interest rate and includes the original loan amount + fees amortized and stretched out over the term of the loan.
Collateral- There are some loans that may require that you secure the loan with something that you own. When you take an auto loan, the bank keeps the title to your car and when you have a mortgage the bank is listed as a lien holder on your deed.
You also need to do your research. All banks are not created equal. Don’t be afraid to shop around for a bank that will offer you the best rate and terms.
When it comes to an auto loan you need to lock in a fixed rate. The rates will not be the same for a new car as for a used car. The terms of the loan may also be different. The bank protects itself by not extending a loan past the expected life of the car.
Before you go in to negotiate your loan you need to know your credit score. The higher your FICO the better rate you will be entitled to. If you know you will be looking for a loan in the near future, you should take what ever steps are necessary to make sure your credit is looking its best.
Personal loan- A personal loan is an unsecured loan for a fixed term and interest rate. You can use it for anything that you want, Some loans for consolidating debt are personal loans. Your credit rating is very important when you are considering trying to get a personal loan. Banks don’t like to give unsecured loans to people with iffy credit.
Unsecured loans – higher interest rate because there is no collateral backing up the loan.
Mortgages- There are many different types of mortgages. Not all of them are good for the home buyer. The current fiasco in the home market it a direct result of a lot of really bad mortgages.
Fixed rate mortgage- A fixed rate mortgage is what many people call a conventional mortgage. You will have one rate for the entire term of your mortgage. These mortgages can have a term as long as forty years or as short as 10 years. The shorter your term, no matter what your rate, the less interest you will pay, so only get a mortgage for as long as you absolutely need it to be.
Adjustable rate mortgage- These mortgages usually are fixed at a rate lower than the usual rate at the time the mortgage is initiated for a certain number of years and then they adjust to current financial conditions. This can cause a dramatic change in the rate you are paying, changing your monthly payment to an amount you can no longer afford. Some have seen their mortgage payments nearly double. The benefit is of course that you are gambling that the rate will be lower when the rate adjusts. These mortgages are perfect for people who will be selling their home before it adjusts.
Balloon payment mortgage- These mortgages offer low payments and rates for a designated number of years and at the end of that time the entire balance is due. If you plan on having a windfall or selling the house before the balloon is due then this can work for you but for the average buyer, not such a good idea.
These are just some of the loans that the average bank offers, there are many more. Before you get any type of bank loan be sure that your read all the terms and conditions and know about any additional fees that you will be required to pay.