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Beginner’s Guide to Understanding Loans

Jun 13, 2022

going over a loan agreement

You may have a lot of questions if you are considering taking out your first loan. It may even seem daunting to navigate all of the details involved. To get you started, here are some of the basics for understanding different types of loans, loan protection, and even how to apply for your first loan.

Uses for Personal Loans

There are many different things that personal loans may be used for. People take out loans for many reasons, and each has their own process. Some purposes may even require specific qualifications. Some examples of uses for personal loans include:

  • Unexpected Expenses: Covering expenses such as major home repairs and unexpected medical costs may require a personal loan to help take pressure off your credit card.
  • Major Events: Major life events such as weddings or funerals can be expensive, and you may not have sufficient savings to cover the full cost. Personal loans could be used to cover expenses that your savings cannot.
  • College: Sometimes a personal loan may be a better option than a student loan depending on the interest rate. You may use a personal loan to pay off student loans, but you should always check with a professional to make sure you understand the differences between your options.

Loan Categories

To help you understand different categories that loans can fall into, it’s a good idea to learn what common terms mean.

Secured and Unsecured Loans

Secured loans require you to offer up a personal asset to obtain the loan, and the loan amount and interest rate may depend on the value of the offered asset along with your credit score and income.

Unsecured loans are personal loans that are not backed up by any collateral. This means that the interest rate and loan amount may be determined by your credit score and income. Unsecured loans typically have a higher interest rate because there may be more risk involved.

Open-Ended and Closed-Ended Loans

Open-ended loans are a fixed amount that can be borrowed from again and again. The available credit decreases as you spend and increases as you make repayments.

Closed-ended loans are one-time loans that you cannot borrow from again. The amount is fixed and repaid over an agreed upon period of time, and you cannot take more money out as you pay the loan.

Nonconventional and Conventional Loans

Nonconventional loans are also referred to as government loans, and they are backed by the government. These loans are issued by the government, and they typically have more lenient qualifications, such as a lower credit score. They may also have lower requirements for down payments.

Conventional loans are backed by private lenders, such as credit unions like Georgia Heritage Federal Credit Union. Because private lenders are without government insurance, the lender is the one at risk if the borrower defaults. This may lead to stricter qualifications than government loans and usually require a stronger credit score and larger down payment. Conventional loans can be further split into two categories: conforming and nonconforming loans.

Conforming and Nonconforming Loans

Conforming loans follow guidelines outlined by government-sponsored enterprises that buy mortgage loans: Fannie Mae and Freddie Mac. The federal Housing Finance Agency oversees both enterprises and sets funding criteria such as the maximum loan amount that the two are able to purchase.

Nonconforming loans do not follow guidelines for Fannie and Freddie, so they don’t qualify under those enterprises. These loans are most often above the loan limits set by the FHFA. Nonconforming loans may be required when you need a loan amount that is above the conforming loan limit.

How to Apply for a Loan with Georgia Heritage FCU

There are 6 requirements in the process to apply for a loan with Georgia Heritage Federal Credit Union:

  1. Loan information such as the type of loan you are applying for
  2. Personal information
  3. Employment
  4. References
  5. Qualification questions
  6. Review

Loan Protection

Loan protection may give you added confidence in your loan as well as peace of mind through extended and comprehensive warranty plans. The benefits of loan protection may include:

  • Added security
  • More convenient payment of premiums
  • Saving you money
  • Protecting investments & collateral
  • Protecting your financial future
  • Protecting your family
  • Protecting your credit history

For general information or answers to specific questions about loans, speak with one of our associates. Contact Georgia Heritage Federal Credit Union by sending us a message through our website or calling us at (912) 236-4400.


Become a Member of GHFCU

Anyone who lives, works, worships, or attends school in Chatham, Effingham, or Bryan counties in Georgia and their immediate family members may gain membership to the Credit Union.

Apply Now

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