There are many different types of loans available to consumers and businesses, and First Bank offers personal and business loan options to suit your lending needs. On the personal lending side, these include mortgage loans, personal loans and vehicle loans, and on the business lending side these include commercial real estate loans, residential construction loans and revolving lines of credit. Below, you can find more information on common loans and tips to consider when borrowing money for certain purposes.

Types of Loans

There are two main categories of loans: installment loans and revolving loans. An installment loan is usually repaid in equal payments, or installments, for a specific period of time, usually several years. Examples include:

• Fixed rate mortgages (home loans)
• Vehicle loans
• Personal loans

A revolving loan (or revolving line of credit) allows you to make unlimited purchases up to a pre-approved dollar limit. Your payments will vary based on how much you have borrowed. Examples include most:

• Credit cards
• Home equity lines of credit (also called a HELOC)
• Revolving business lines of credit

Secured and Unsecured Loans

Installment and revolving loans can be secured or unsecured.

With a secured loan, you pledge collateral to secure repayment of the loan. Collateral is an asset you own, such as your house, vehicle or cash. If you cannot repay the loan as agreed, the lender can take your collateral and use it to get some or all of their money back.

• You may be responsible for paying the remaining balance on the loan if the collateral does not sell for enough money to repay the debt.
• Mortgages and auto loans are usually secured loans.

Unsecured loans are made based only on your promise to repay the money you borrow. They are not secured by collateral. Lenders consider these loans more risky than secured loans, so they may charge a higher interest rate than for a secured loan.

• Credit cards and student loans are often unsecured loans.

The Cost of Borrowing

It is important to know about the costs associated with borrowing money. You will generally repay more money than you borrowed. Credit cards are generally an exception. If you do not carry a balance and pay the current charges in full by the due date, you will not be repaying more money than you borrowed.

In addition to repaying the money you borrowed (called the Principal), you generally have to pay two costs: interest and fees. Interest is the amount of money a financial institution charges for allowing you to use its money. It is expressed as a percentage and can be either fixed or variable.

• Fixed rates stay the same during the term of the loan, except with most credit cards, where the rate can change if the bank gives you required notice.
• Variable or adjustable rates might change during the term of the loan. The loan agreement explains how the rate can change.

Fees may be charged by lenders for certain activities, such as reviewing your loan application and servicing the account.

• Common examples of fees include origination fees for home mortgages or late fees if you do not make credit card or other loan payments on time.
• Lenders often subtract fees from the loan proceeds before you receive the loan money. For example, if you borrow $1,000 and there is a $100 fee, you may only receive $900.

Prepayment is the early repayment of all or part of a loan. When you prepay, you pay the lender more than the amount of your regular monthly payment. You have them apply the “extra” amount to your outstanding balance.

• If you prepay your loan in full, you will stop paying interest because you no longer owe any money.
• If you prepay part of your loan: You could reduce interest costs
• You may finish paying off your loan earlier

Prepayment is one strategy for reducing the costs of borrowing money. Some loans have prepayment penalties, and others do not.

• A prepayment penalty charges a fee for early repayment of all or part of a loan. The specifics vary from loan to loan.
• When you shop around for a loan, find out whether loan offers have prepayment penalties.

For more information on loans and other financial resources, visit the FDIC’s Consumer Resource Center.