Exploring US Loan Options: A Comprehensive Guide for Beginner Borrowers

Loans are paramount for a smooth money supply and uniform economic distribution in the US. If you’re low on funds, loans can leverage your financial potential. Similarly, small business loans can help them earn their primary revenue. In this article we will deep dive into the importance and types of US loan options.

Brief overview of the importance of loan options in the US

Around 77% of Americans run on some kind of loan. Hence, it’s apparent that loans play a critical role in the US economy. The bottom line is that loans support our economic welfare. For example, you can use consumer loans to make big purchases like cars and homes.

The sector of business loans in the US is even more significant. Loans help businesses expand their revenue, employ more people, and make valuable economic contributions.

The bottom line is that all spheres of people in the US are dependent on some or the other loan options. Meanwhile, we need a clear insight into the most critical US loan options. And that’s the main objective of our article too.

II. Key Concepts

Before going into the loan types, let’s learn about the broad scale of the US loan market. Do you know what a loan is? What are the consequences and outcomes when you take a loan?

* Definition of a loan and its types

Briskly, a loan is the sum you borrow from a financial institution or private lender. In return, you have to repay the sum loaned and the interest accrued on the same. However, the interest rate varies per the loan scheme and respective loan clauses.

Some of the US loan options are:

• Secured loans
• Unsecured loans
• Closed-ended loans
• Open-ended loans
• Revolving loans
• Student loans
• Home equity loans, etc

* Overview of the US loan market

In the last 2 decades, many more FDIC-insured commercial lenders appeared in the market. Consequently, the banks alone lend $12 trillion in the US now. The average bank lending rate is 7.7% per annum now.

Meanwhile, loans result in constant debt. While the loan market grows, the US’s resultant debt ($50.9 trillion) also grows. At this scale, the loan market would become $114.7 billion by the end of 2034.

* Importance of credit scores in loan applications

However, the loan is still a proprietary component. You have no free will over the amount you want to loan. How much you can lend depends on your credit score. All US loan options follow this mandate.

No scheme will offer you a suitable loan scheme if you don’t have a healthy credit score. But what’s the relationship between loan sanctions and credit score? A good score is a proof of your creditworthiness. When you have a frail score, it is apparent that you may not be able to pay back.

III. Types of US Loan Options

Let’s focus on the prime US loan options. This will give you a clear idea of which scheme is the best for you.

A. Personal Loans in the US

Almost all US banks offer personal loans. Let’s take the example of U.S. Bank Simple Loan. They can charge a minimum of 7.7% p.a interest from you against personal loans. However, banks like Santander and Wells Fargo may charge upto 25% annual interest. U.S. bank personal loan requirements can often be troubling.

+ Definition and purpose of personal loans

You can get a personal loan for perpetually everything. It can be buying a TV or paying bills. However, it is a kind of unsecured loan. Therefore, you don’t have to share any collateral to get this loan.

+ Types of personal loans (e.g., unsecured, secured, payday loans)

80% of the US banks and credit unions offer unsecured personal loans. However, some of the financial companies offer secured personal loans as well. But you can loan a limited amount with secured loan options. For example, Navy Federal Credit Union provides upto $50,000 against secure personal loans only. Meanwhile, OneMain Financial gives upto $20000  secured loans.

You can also count the payday loans among personal loans. They’re primarily short-term loans. Moreover all payday loans charge high interest from you.  You may also be eligible for small payday loans like $300 in the US. However, the bottom line is that it is still an unsecured loan.

B. Mortgage Loans

Lenders keep your property as keepsafe until you clear off the loans. And if you cannot repay, they will demand the collateral in exchange.

+ Definition and purpose of mortgage loans

A mortgage loan is simply an option that allows you to borrow funds against collateral. Mortgage loans may give you the best rates when planning any big purchase. Meanwhile, the loan rates vary as per loan tenure. For a 30-year fixed loan, you may have to bear an interest rate of 6.8%. And an annual APR of 6.9% is applicable.

+ Types of mortgage loans (e.g., fixed-rate, adjustable-rate, government-backed loans)

Generally, we come across fixed-rate and adjustable-rate mortgages. Your interest will remain unchanged throughout the loan term if it’s a fixed-rate mortgage. However, the rates of adjustable-rate mortgages might increase or decrease in context with the real-time market rate trends.

But it is better to avail of a government-backed mortgage loan program. The scheme is best for plans like buying your dream home. FHA loans are one typical example of government-backed loans.

C. Student Loans

Student Loans give you access to funds for an educational program. However, charges a low monthly EMI. Let’s learn in detail about student loans.

+ Definition and purpose of student loans

If you can’t pay higher education or corporate training fees, you can avail of a student loan. However, you can use the loan amount flexibly. They are by no means fixated on paying college or tuition fees only. You can also cover your textbook costs, tuition fees, and living costs.

+ Types of student loans (e.g., federal, private, consolidation loans)

Three years ago, the US colleges and universities registered the names of 17.5 million students for federal student loans. Meanwhile, around 50% received federal loans from the William D. Ford Federal Direct Loan Program.

There are private student loans as well. But you may need an exceptional credit score or a suitable co-signer. So all experts will suggest you go all out for federal student loans at first.

If your monthly loan payback value is too high, you can consolidate your federal education loans in a direct consolidation loan plan. Here, the purpose of the loan is to lower your monthly payback value.

D. Business Loans

Small and emerging businesses can make it big, when they can avail of business loans. It is a kind of commercial loan. Meanwhile, it covers your business costs like working capital, real estate, inventory, and equipment purchase expenses.

+ Definition and purpose of business loans

When you need a loan to grow your small brand, apply for business loans. The interest rate of the average fixed-term business loan varies from 6.4 to 99%. However, there is no single scheme for business loans. So, the rates depend on the scheme type at the end of the day.

+ Types of business loans (e.g., small business administration loans, term loans, line of credit)

• SBA Loans: the US Small Business Administration partially guarantees the loan. Hence, all small businesses try to get their hands on SBA loans at first.
• Term Loans:  Like personal loans, you pay back the lump sum you get upfront. However the best part is that you can repay in monthly installments.
• Loans of Credit: a revolving line of credit taken in the name of a corporate entity.

IV. Alternative Loan Options

You may try many other flexible and non-formal/alternative loan options. Some of the significant alternative options are listed here:

A. Peer-to-Peer Lending

More than 600 online lending platforms match lending peers with borrowers. Meanwhile, there is no official institution like the US SBA involved here. So, it is privatized. The P2P lending rates may vary from 8.99% to approximately 35.99%.

+ Definition and explanation of peer-to-peer lending

Peer-to-peer lending is an excellent option to avail of an alternative credit line. Mainly, private lenders approve your loan claim if you have a sound credit score. So, keep checking your Credit Reports every month.

+ Benefits and risks of peer-to-peer lending

P2P lending is easy. There’s less paperwork, and lenders can contact you quickly. At the same time, there are risks like the lack of any central intermediary.

B. Online Lenders

The online lenders should be your last option. But why?

+ Definition and explanation of online lenders

Bank loan not approved? Don’t worry; online lenders will offer you some deals. But they may charge high interest with APR as high as 30 to 35%. When there’s no option left, try to get a deal from popular lenders like LendingClub, LightStresm, etc.

+ Benefits and risks of online lenders

The prime benefit is that they offer loans to individuals or entities with low credit scores. You may get a deal of $10,000 to $20,000 even if you have a credit score of 550 or around.

However, the risk is that they will charge high interest rates. When you can’t pay back, they will charge you profusely with calls, emails, and often with visits.

C. Credit Unions

There are 4760 FDIC-approved credit unions. They can lend and collect money as per private lending schemes and rates upon agreement from anybody.

+ Definition and explanation of credit unions

Credit unions are one of the prominent US loan options I must mention. They operate like banks and help diverse borrowers when their loan applications fail. Mainly the lending rates with credit unions are better than banks.

+ Benefits and risks of credit unions

There are many unions which offer free accounts and fee waivers. Most credit unions charge the lowest interest rates. However, the biggest issue is that their accessibility is minimal.

V. Benefits and Risks of US Loan Options

The US loan options are diverse. There is a tailored loan scheme for every purpose and venture. But lending has its benefits and risks.

A. Benefits

• Access to credit,
• Flexibility,
• Convenience

B. Risks 

• Debt,
• Frequently high to very high interest rates,
• Often unscrupulous fees

VI. Conclusion 

The US loan options help you to maintain fiscal stability on most grounds. Loans are no big deal until you know when and how much to borrow. However, try to maintain a good credit score. Take and pay back loans on time. Also, try not to spend the whole amount borrowed.

For More Business Related Information:

• Navigating Short-Term Business Loans: A Complete Guide
• Great Reasons To Expand An Australian Business By Obtaining A Vehicle Loan
• Comparing Small Business Loan Providers: Finding The Best Fit For Your Business Needs