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| Types of credit |
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You can obtain a loan for a specific purpose, such as financing a new car, paying college tuition,
and buying or renovating home. You can get a debt-consolidation loan, which combines all current
debts from various creditors in to a single reduced-interest payment plan. And you get a credit line
linked to your checking account, which gives you bounce-proof protection if you write a check for more
than what you have in your account.
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Loans are generally divided into two types: secured and unsecured. A secured loan is a loan that is guaranteed
by collateral of some kind. Collateral is an item of equal or greater value than the amount of the loan, such as a car,
a home, or a cash deposit. An unsecured loan is not guaranteed by anything.
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| Credit cards are perhaps the most common type of personal credit.
Using a credit card is like getting a loan. Every time you charge something, you're borrowing the money until you pay it back.
If you decide to pay the money back over time, the credit card company adds finance charges to your account that you must
pay along with the purchase amount.
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