A loan is when an individual or entity receives money from a friend, bank or microfinance institution in exchange for future repayment of the principal, plus interest.
The principal is the amount one borrowed, and the interest is the amount charged for receiving the loan.
However, there are various kinds of loans available in the financial market today and many are classified into various categories depending on the loan requirement as stated below:
Student loans:
These loans are offered to college students and their families to help cover the cost of higher education. which have fixed interest rates and don’t have to be repaid until a few months after graduation.
Mortgages:
Mortgages are loans distributed by banks to allow consumers to buy homes they can’t pay for upfront. A mortgage is tied to your home, meaning you risk foreclosure if you fall behind on payments. Mortgages are designed to make home buying accessible by spreading out the cost over many years.
Auto loans:
Auto loans are tied to an individual’s property. They can help to afford a vehicle, but one risks losing the car if they miss payments. This type of loan may be distributed by a bank or by the car dealership directly. You should understand that while loans from the dealership may be more convenient, they often carry higher interest rates and ultimately cost more overall.
Personal loans:
Personal loans are the most versatile loan type on the market. These loans can be borrowed for debt consolidation, day to day living expenses, vacations or credit building among other things.
Long term loans:
one of the most common types of loans distributed by large commercial lenders. Long term loans are basically used for business expansion, working capital or refinancing. However, they tend to be in larger amounts with lower interest rates but are to be paid on a monthly basis.
Secured loans:
With a secured/collateral loan, one leverages personal property to acquire a loan. If an individual fails to repay the loan, the property, later on, gets transferred to the lender.
Unsecured loan:
This type of loan is not backed by collateral, therefore, the interest rate and size of the loan is determined by an individual’s credit history and income. These are also known as a signature or personal loans.
Cash advances:
If one is in a pinch and needs money quickly, cash advances from one’s credit card company or any payday loan institutions are an option.
Small business loans:
Basically, local banks tend to offer these loans to individuals looking to start a business. One of the major requirements for this loan is a business plan to elaborate on the validity of what one is doing. It will require one to pledge some personal assets as collateral just in case the business fails thus making small business loans a secured loan.
Online installment loans:
These are relatively small in terms of amount and they are to be paid back in a fixed manner/installments. Each payment will have deadlines which one will need to meet.
Guarantor loans:
This is another type of loan which is basically suited to people who tend to lack the very best credit history in the world. When an individual is not sure about how to get hands on the money needed, he/she can back up with a guarantor. In scenarios when one fails to raise the money for repayment, the guarantor will be required to repay this debt.
