10 Common Types of Loans and How Each Works

There are several major types of loans, including personal loans, student loans, mortgages, auto loans, home equity loans, small business loans, and payday loans. Each serves a different purpose and suits different financial situations; knowing the differences helps you borrow smarter.

At Upstart, we know choosing between different types of loans can feel overwhelming. With that in mind, we created this beginner’s guide to borrowing. Here, we’ll break down the different loan types available to consumers.

Secured vs. Unsecured Loans: The Core Distinction

Before comparing specific loan types, it helps to understand the two broad categories that most loans fall into: secured and unsecured.

A secured loan requires you to put up collateral, such as your home or vehicle. Because the lender can recoup its loss by seizing that asset if you default, secured loans typically come with lower interest rates. Mortgages, auto loans, home equity loans, and home equity lines of credit (HELOCs) are all secured loans.

An unsecured loan typically does not require collateral. Instead, the lender evaluates your creditworthiness, including your credit score, income, and debt-to-income ratio, to determine whether to approve you and at what rate. Personal loans, student loans (federal), most personal lines of credit, and credit builder loans are typically unsecured. Because lenders take on more risk with unsecured products, rates tend to be higher than for comparable secured loans.

Common Loan Type Comparison

Let’s take a look at some of the most common types of loans and their key facts: 

Loan Type	Best For	Typical Term	Secured?	Typical APR Range
Personal loan	Flexible expenses, debt consolidation	1–7 years	No	7%–36%+
Student loan	Higher education	10–25 years	No (federal)	6.39%–8.94% (2025–26)
Mortgage	Home purchase	15–30 years	Yes	6%–8%
Auto loan	Vehicle purchase	3–7 years	Yes	5%–20%+
Home equity loan	Large one-time expense	5–30 years	Yes	6%–11%
HELOC	Flexible home expenses, ongoing projects	10-yr draw / 20-yr repay	Yes	variable, ~6%–11%
Small business loan	Business growth	Varies	Varies	Varies
Credit builder loan	Building credit	6–24 months	No	6%–16%
Personal line of credit	Ongoing/flexible needs	Revolving	No	10%–21%
Payday loan	Avoid if possible	2–4 weeks	No	400%+

Note: APR ranges are approximate and vary by lender and credit profile. Sources of APR range: personal loans (Bankrate), mortgages (Freddie Mac PMMS), auto loans (Federal Reserve G.19), home equity loans (Bankrate), HELOCs (Bankrate), credit builder loans (Credit Karma), personal lines of credit (NerdWallet), payday loans (CFPB), federal student loans (StudentAid.gov).

The 10 Most Common Types of Loans

1. Personal loans

A personal loan is a type of loan used for various expenses. You can choose from several types of personal loans, which we’ll discuss in more detail below.

When you get approved for a personal loan, you usually receive your money upfront in a single lump sum. Then, you make fixed monthly payments over a set term to repay the loan principal, plus interest. 

Your loan term may range from as little as 6 months to as long as 10 years. The length of your loan depends on several factors, including the loan amount, your lending company, and your credit history. 

Most personal loans are unsecured, which means they aren’t backed by any collateral like your home or car. If you can’t repay the loan, your lender won’t repossess your personal property to cover its loss. Other types of personal loans work similarly. 

Some lending companies give their loans specific names based on their purpose, such as a wedding loan. You may find that loans designed for certain expenses have different interest rates, funding timelines, or minimum and maximum loan amounts.

Co-signed and joint personal loans

Some personal loans allow you to apply with another person to strengthen your application. A co-signer agrees to repay the loan if you cannot, but does not receive the loan funds or share ownership of what you purchase. A joint applicant, sometimes called a co-borrower, shares both the debt obligation and access to the loan funds. Either arrangement can help you qualify or secure a lower rate, but both parties should understand that missed payments will affect both of their credit scores.

Note: Personal loans through Upstart are based on individual credit and income only. Cosigners and co-borrowers are not supported. If you are not currently eligible, consider paying down existing debt and making on-time payments to strengthen your credit profile before reapplying.

2. Student loans

Borrowers use student loans to pay for college tuition and other related expenses. In many cases, students take out federal loans held and managed by the Department of Education. However, some students also borrow from private lenders to bridge the gap between their federal loans and actual expenses. 

Choosing to take out a federal or private student loan is a personal decision. It’s important to understand potential interest rates and repayment periods before signing onto a loan. 

Let’s take a closer look at average interest rates and term lengths for federal and private student loans. 

Type of student loan	Federal (Subsidized and Unsubsidized)	Private
Potential interest rates	3.73% to 6.28%	1.04% to 12.99%
Repayment terms	Up to 10 years for federal loans 10 to 30 years for consolidation loans	10 to 25 years or more
Credit score requirements	No credit check required for most federal student loans	Good to excellent score required (think, 670 or higher on the FICO® scale)

Student loans have helped countless students further their education. Even so, the student loan repayment process can be difficult to navigate. Make sure you do your research and consider alternative funding options before signing onto a student loan. 

3. Mortgage loans

Mortgage loans provide financing when buying a home. Also known as a home loan, mortgages often come with terms ranging from 15 to 30 years. Because they are secured by your home, mortgages typically carry lower interest rates than unsecured borrowing. It is important to make sure you can cover your monthly payments; if you default, your lender could foreclose on your home.

Mortgages may carry fixed or variable interest rates. Fixed rates stay the same throughout the loan term. Variable rates, also called adjustable rates, may change on a monthly, quarterly, or yearly basis based on an underlying financial index.

Some mortgages are backed by government bodies such as the Federal Housing Administration (FHA), the U.S. Department of Agriculture (USDA), or the Department of Veterans Affairs (VA). Government-backed loans often feature lower down payments and fewer qualification requirements, though rates can be slightly higher than conventional loans. Conventional mortgages held by private lenders may have stricter qualification guidelines but can offer more competitive rates to well-qualified borrowers.

Reverse mortgages: Available to homeowners 62 or older, a reverse mortgage allows you to borrow against your home equity without making monthly payments. The loan balance becomes due when you sell the home, move out permanently, or pass away.

4. Auto loans

An auto loan finances the purchase of a new or used vehicle. Like mortgages, auto loans are usually secured by the vehicle itself, which helps keep rates lower but means your lender could repossess the car if you default.

New car loans typically carry lower interest rates than used car loans, because new vehicles are easier for lenders to value. APRs can range widely, from around 5% for well-qualified borrowers on a new car to 20% or higher for borrowers with poor credit (Federal Reserve G.19, March 2026). Loan terms typically run three to seven years. Shorter terms often mean lower rates; longer terms reduce your monthly payment but increase total interest paid.

You can apply for an auto loan through a dealership, a bank, a credit union, or an online lender. Shopping multiple sources before you buy gives you negotiating leverage at the dealership.

5. Home Equity Loans

A home equity loan lets you borrow a lump sum against the equity you have built in your home, typically up to 80-85% of your home’s value minus your remaining mortgage balance (source: Consumer Financial Protection Bureau). Because the loan is secured by your home, you may qualify for a lower interest rate than with an unsecured personal loan.

Also known as a second mortgage, a home equity loan works like a personal loan in repayment structure: you receive the funds upfront and make fixed monthly payments over a set term, typically five to  30 years. You can use the funds for almost any purpose, including home renovations, college tuition, medical expenses, or other large costs.

Because your home serves as collateral, defaulting on a home equity loan could result in foreclosure. Borrow only what you need and make sure the monthly payment fits your budget.

6. Home Equity Line of Credit (HELOC)

A home equity line of credit, or HELOC, is a revolving credit line secured by your home. Unlike a home equity loan, which provides a one-time lump sum, a HELOC lets you borrow, repay, and borrow again during a draw period, typically 10 years. This flexibility makes it well suited for homeowners with ongoing expenses such as home renovations, tuition, or medical bills.

HELOCs typically carry variable interest rates tied to the prime rate. For well-qualified borrowers, rates generally range from about 7% to 10% as of 2026, though your rate will depend on your credit score, the amount of equity in your home, and lender terms. After the draw period, you repay the outstanding balance over a repayment period of up to 20 years. Because your home secures the line, defaulting could result in foreclosure.

If you own your home and want to tap your equity, you can check your HELOC rate with Upstart Home Lending in minutes without affecting your credit score¹.

7.Small Business Loans

Small business loans help business owners and entrepreneurs fund daily operations or bring a new idea to life. Several types of small business financing are available.

SBA 7(a) loans are the most common loan program offered by the Small Business Administration. They can provide up to $5 million in financing and are partially backed by the federal government, which may allow lenders to offer more competitive rates and terms than a conventional business loan. (Source: SBA.gov)

Term loans from banks or online lenders provide a lump sum you repay over a fixed period. Terms can range from a few months to 25 years depending on the loan size and purpose.

Business lines of credit work like a revolving credit account for operating expenses. You draw funds as needed up to your credit limit, repay what you use, and borrow again. This flexibility makes lines of credit a good fit for managing cash flow.

Qualification requirements vary by lender and loan type. Banks typically require strong credit and established financials; some online lenders work with newer businesses or borrowers with limited credit history.

8.Credit Builder Loans

A credit builder loan is designed specifically to help people build or repair their credit history. Unlike a traditional loan, the lender holds the loan amount in a savings account while you make monthly payments. Once you complete all payments, you receive the funds. Your payment history is reported to the credit bureaus throughout the loan term, helping you establish a positive track record.

Credit builder loans are typically small, ranging from about $300 to $1,500, with terms of six to 24 months. You can find them at credit unions, community development financial institutions (CDFIs), and some online lenders. They are a good option if you cannot yet qualify for an unsecured credit card or personal loan but want to start building credit.

9.Personal Line of Credit

A personal line of credit is a revolving credit product that lets you borrow up to a set limit, repay what you use, and borrow again as needed. Unlike an installment loan, you only pay interest on the amount you have drawn, not the full credit limit.

Personal lines of credit typically carry variable interest rates ranging from about 10% to 21%. They are unsecured, which means no collateral is required, but lenders generally require good credit (a score of 700 or higher) to qualify. Rates are often lower than credit card APRs, though personal lines of credit typically do not come with rewards programs.

A personal line of credit works well for borrowers with ongoing or unpredictable expenses, such as home projects spread over time or irregular income situations.

10.Payday loans

Payday loans are short-term loans that advance money against your next paycheck. They typically carry repayment periods of two to four weeks. According to the Consumer Financial Protection Bureau, the typical payday loan carries an APR of around 400% or higher, making them extremely expensive to carry.

Payday loan providers often set few qualification requirements. You may only need to prove you are 18 or older, have a source of income, and have an active checking account to qualify. Even so, the steep interest rates, short repayment windows, and rollover fees can trap borrowers in a cycle of expensive debt. It is best to explore all other options before turning to a payday loan.

What to consider before applying for a loan

Ready to start your borrower’s journey? Once you determine which type of loan account you need, it’s time to find the best loan—and loan provider—for you. 

If you feel overwhelmed by your options, use this quick checklist to help narrow your search: 

1. Check your credit score. 
2. Review your credit history. 
3. Determine how much you need to borrow. 
4. Consider the loan terms carefully. 
5. Clarify the available rates. 
6. Calculate your monthly payment using a personal loan calculator to ensure you can cover the costs of your loan. 

How to Choose the Right Loan for Your Situation

After reviewing the options above, you likely have a clearer sense of which loan type fits your situation. If you need flexible funds without collateral, a personal loan or personal line of credit may be worth exploring. If you are buying a home or car, a secured loan will typically offer better rates. If you are building credit from scratch, a credit builder loan can help you establish the history you need.

No matter what you choose, take the time to compare offers, read the terms, and find a safe, legitimate lending marketplace to help you build a better financial future.

Frequently Asked Questions

What is the easiest type of loan to get approved for?

Credit builder loans and secured loans tend to have the most accessible qualification requirements. Payday loans also have minimal requirements, but their extremely high APRs make them a poor choice. If you have limited credit history, a credit builder loan or a secured personal loan may be your most practical starting point.

What is the difference between a secured and unsecured loan?

A secured loan requires collateral, such as a home or vehicle, that the lender can claim if you default. An unsecured loan does not require collateral; instead, approval is based on your creditworthiness. Secured loans typically offer lower interest rates because the lender takes on less risk.

What type of loan is best for debt consolidation?

A personal loan is generally a straightforward tool for debt consolidation. You receive a lump sum, pay off your existing balances, and then repay the personal loan in fixed monthly installments. There is no universal best option — the right financing choice depends on your needs and personal financial situation. Borrowers with home equity may also consider a home equity loan, though putting your home at risk to pay off unsecured debt carries additional considerations.

What types of loans do not require collateral?

Unsecured loans do not require collateral. These include personal loans, federal student loans, personal lines of credit, credit builder loans, and most payday loans. Approval and rate are based on your credit score, income, and other financial factors rather than any asset you own.

What is the best loan option for someone with bad credit?

Borrowers with bad credit may have the most success with a credit builder loan, a secured personal loan (backed by savings or another asset), or a co-signed personal loan. These options either reduce lender risk or provide an alternative path to approval. Improving your credit score before applying will expand your options and help you qualify for better rates.