Types of People who Take Loans – Are You One of Them?

Types of People who Take Loans - Are You One of Them

The Urban Institute has come up with a new report that reveals that for the majority of US citizens out there, debt is typically solely of one type. In the study, the organization analyzed the data made available from the credit reports of 5 million Americans for five years.

By the analysis of data, researchers were able to detect several trends among Americans with debt. One of the study findings was the classification of borrowers into sex distinct types. It was possible to classify a whopping 89% of consumers who had credit reports into one of these categories. The categories are as follows:

People With No Debt

The study found that people with no debt were the most common type of consumers around. Among the people whose credit reports were surveyed, 29% of the consumers had no debt records. We should remember that there are a large number of people who don’t have credit reports and debts. It came to the notice of the researchers that some of the people who had no debts scored lower than people with some amount of debt.

As per the opinion of personal lending experts, lack of debt does not necessarily suggest a lack of desire to borrow. Often it just indicates that the person lacks the credit record that he or she needs to borrow money. The observation points out how one needs to get a foothold in the borrowing loop to have a decent credit record.

Another thing to note is that the no debt group mentioned here does not include people who use credit cards but pay their balances in the required time. The researchers couldn’t distinguish the people who pay balances in due time (transactors) to those who don’t and accrue interest on the sum(revolvers).

Related: Good Debt vs Bad Debt: What Is the Difference?

People who Spend on Credit Cards

take loans - credit

For another significant 22% of people with credit records, the only kind of debt they were credit card debt. Not all the people in this group consider themselves to be in debt, however. As mentioned earlier, the study couldn’t differentiate between people who pay balances in time and those who don’t. So, the figure mentioned above consists of both types of credit card users. One explanation of such a large number of such credit card borrowers is it is one of the easiest ways to get credit with credit scores to suit all sorts of borrowers.

People who have a Mortgage Only.

13% of the surveyed consumers had only home loans. In all likelihood, this group had other kinds of debt previously considering mortgages require excellent credit scores, which call for debts.

People With Auto Loan Only

It was observed that for 12% of the surveyed consumers, the only type of debt they had was auto loans.

People With Both Auto Loan & Mortgage

This borrower group consists of 9% of all people with debt and is the typical loan combination amongst American borrowers.

People With Student Loan Only

Banks typically grant student loans to people with no credit history, and it forms the first step in the world of borrowing for many people. But often for this 4% of borrowers, the borrowed amounts get out of hand.

Types of Loans

There are seven types of loans for individuals in the US. They are:

Conventional Loans

These are the mortgage or home loans you take for financial institutions backed or not affiliated to a US government agency.

Conforming Loans

These are the loans that don’t conform to the Freddie Mac and Fannie Mae guidelines.

Non-Conforming Loans

This is the type of loan you will usually require for larger loans. Such loan types do not fall in line with the Fannie Mae and Freddie Mac corporation guidelines.

Secured Loans

When you choose a secured loan, you pledge personal property as collateral for the secured loan. If you can’t pay up the loan amount, the property is liable to be transferred to the financial institution that has provided the loan.

Unsecured Loans

These types of loans do not have collateral backing the loan. The borrower’s income and credit history determine the loan amount and the interest payable by him. This type of loan is also called signature or personal loans.

Open-ended Loans

 Such loans provide a credit line that has a ceiling. You can borrow from this credit line multiple times provided you have repaid the previous credit that you used. Credit cards are a common type of open-ended loan.

This information should help you see yourself in the correct perspective as a borrower and the loan options open to you. Happy and, more importantly, wise borrowing!