Loan and Its Types

A loan is an amount that is given to a person who is in need of finance and has agreed to pay back the amount in the given time at a given rate of interest. Hence, the Loan and its types have become an important nutrient for any king of monetary activity.

It has turned out to be a boon for the people who wish to buy anything and do not possess the required amount of funds. A loan can be given by any financial organization or a bank or maybe an individual. A loan is a liability for the borrower which he is supposed to repay.

Loans and their types can be classified as secured or unsecured, depending on the demand.

A secured loan refers to a type of loan in which the borrower promises to give back the amount of money and gives security for the same. The security may be an asset, property, or anything that the borrower possesses. Secured loans prove to be safe for the lender because in case the borrower is not able to pay the leftover amount, the lender can take possession of the security.

Unsecured loans are the ones which are no way secured by any asset or property of the borrower. The risk of the lender is very high. Also, the rate of interest is more than that of the secured ones. Thus the lenders of the secured loans are in a better position than that of the unsecured ones. The only aid that is available for the unsecured lender is that he can sue the borrower.

Demand loans can be unsecured as well as secured. These types of loans are basically short term loans. The term “demand” only states that such loans are to be paid on demand by the lender. The personal loan interest rate is floating i.e. the lender can change it according to his will and wish.

Loan and its types can also be short term as well as long term.

The short term loan and its types refer to the loans that are given for smaller amounts and are to be repaid within a period of three years.

Whereas, long-term loans are the ones, that are given for a period of more than three years. These loans are granted for larger amounts and hence the payback period is a long one. The rate of interest is low as compared to short term loans but the total amount of interest that is paid from the beginning till the end is more than that of short term loans.

The different categories of loans are home loans, personal loans, educational loans, auto loans, etc.

House is the basic requirement for any individual. A loan that is given for the purchase of a house is called a home loan. This is very beneficial as it becomes very difficult for an individual to manage such a huge sum of money without the aid of a loan.

A person has his own personal expenses which are sometimes more than his capacity. At such a point a person needs to find a way in which he can meet these expenses. In such cases, he can apply for a loan which is termed as a personal loan.

Education is a basic necessity these days. The costs of education are increasing day by day. Loans are available for meeting these expenses that are known as educational loans.

Auto loans refer to the loans that are granted for the purchase of vehicles.

The loans have to be paid in installments and with the amount of interest that is charged on them. Loans are highly beneficial to the borrower if he opts for the perfect one.

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