Types of credit

There are several different types of credit: long-term, short-term, secured and unsecured.

Long-term Credit

Is the type of credit you would have with a mortgage, car loans, or other installment loans, which are repaid over months or years. How much the loan will cost is based upon the terms of the loan.

Short-term Credit

Is by definition, for a shorter period of time. One type of short-term credit is a singe payment credit. It is used to purchase items or services that are to be paid for in a single payment within a given period of time, usually with no interest charge. If the balance isn't paid within the given time period, you are charged a fee or interest on the balance. (Utility bills would be an example of this type of credit).

Secured Credit

Requires something of value to be pledged to the lender. Home mortgages and car loans are examples of secured debt. They are also an example of what is known as closed end credit, which calls for a payment of a fixed amount for a predetermined period of time. The interest rate may be fixed or variable.

Unsecured Credit

Is debt based solely on the trustworthiness of the borrower. In other words, there is nothing of value pledged as collateral for the debt; the lender is simply depending on the borrower to repay. Usually the lender's risk is great if you don't repay an unsecured loan because you haven't pledged any collateral.

Most credit card debts are unsecured. Credit card debt is a type of open-end credit and the cost of credit may vary depending on the Annual Percentage Rate (APR) and other finance charges. With a revolving account, such as credit card account, additional credit is extended to pay for the cost of items and services until the borrower's limit or dollar amount has been reached. Minimum payment is required each month to be paid on the balance owed. To the extent the balance is repaid, it can be reused for additional extensions of credit.

Types of Loans

Many of the types of loans would fall under one of the above categories: Business loans, personal loans, real estate loans, lines of credit, interim financing, service loans, life insurance loans, margin loans, retirement loans, student loans and home mortgage loans.