In this world, there are four types of loans most people are going to have to deal with at some point. They are credit cards, installment loans, mortgages and car notes. Let’s talk about these four common but often misunderstood uses of your credit.

Credit cards are loans you take out piecemeal when you buy something. While the rates and your credit limit will vary considerably, the idea is that your small purchases stack up into a running total known as your balance. Since credit card interest can easily be discharged by filing bankruptcy, the interest rate on a credit card balance is usually very high.

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Installment loans are a different animal altogether. With an installment loan, you take out a single amount that you can use for anything from paying bills to purchasing groceries. However, since this is a debt not secured by property, the interest rate tends to be high and the payment term tends to be short.

A mortgage is a lien placed against a piece of real estate that is used to let you own a property without paying for it all in cash. When you take out a mortgage you typically have a long time to pay for it in even monthly installments that you can overpay if you want the loan to diminish faster.

A car note is a loan placed against the value of a motor vehicle. When you buy a car but can’t pay for it in cash, you get a car note. Usually this loan takes between three and five years to pay off and has a high interest rate because cars depreciate in value.

Are you ready to take out a new loan?