What are loans?
A loan in financial term is simply the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations etc. The recipient incurs a debt and is usually liable to pay interest on that debt until it is repaid as well as to repay the principal amount borrowed.
What are the different types of loans?
Oh! I see you are getting more interested! But, what more would you love to know about loans? The various types? Well, then, there are a few metrics used for classification, some of the include;
- Sources or Issuing Institutions
- Duration or tenure ship of Loan
- Purpose of Loan
- Terms and condition of loan.
Well, in this article, we will provide explanations based on the terms, which provides a more encompassing view or classifications of loan,
A secured loan is a loan that requires you to provide collateral when applying for the loan. This collateral is a form of safeguard for the loan provider, and so if you don’t pay the loan back, the loan provider gets to collect the collateral to settle the loan. Secured loans usually have lower interest rates, and you can borrow more.
Advertisements
Secured loan
A secured loan is one that is backed by some form of collateral. Other assets that can be put up as collateral are stocks, bonds, and personal property. Most people apply for secured loans when they want to borrow large sums of money. Since lenders are not typically willing to lend large amounts of money without collateral, they hold the recipients’ assets as a form of guarantee.
Unsecured loan
With unsecured loans, it requires no collateral in the application of the loan. Unsecured loans are usually personal, instant loans in Nigeria and come with higher interest rates because of the payback. There is less money available to borrow with unsecured loans, however. an unsecured loan means that the borrower does not have to offer any asset as collateral.
With unsecured loans, the lenders are very thorough when assessing the borrower’s financial status. This way, they will be able to estimate the recipient’s capacity for repayment and decide whether to award the loan or not. Unsecured loans include items such as credit card purchases, education loans, and personal loans.
Single payment loans
Here, the borrower taking out a loan from a loan provider and agreeing to pay back the full amount of the loan plus interest in one payment.
Monthly payment loans
As opposed to single payment loans where you pay back the loan once, you repay monthly payment loans over a spread period. Each month, the borrower is obligated to pay a prefixed amount, until the loan and interest are settled.
Salary advance loans
The loan type is basically for salary earners. Most paychecks are paid towards the end of the month, but with a salary advance, you could get it earlier than that. The amount is then deducted from the actual salary when it is paid. Salary advance loans usually don’t charge high-interest rates.
Mortgage
these are loans taken out for the purchase of a house or landed property. At a fixed period, an amount is deducted to settle the mortgage. However, if the payments on the mortgage stop or if it isn’t paid, the mortgage loan provider gets to collect the property from the borrower.
Fixed-rate loans
Fixed-rate loans are loans with one fixed interest rate throughout the loan.
Variable-rate loans
With variable rate loans, the interest rates on the loan change over time. The change is determined by the general interest rates fluctuating.
Open-End and Closed-End loans
A loan can also be described as closed-end or open-end. With an open-ended loan, an individual has the freedom to borrow over and over. Credit cards and lines of credits are perfect examples of open-ended loans, although they both have credit restrictions. A credit limit is the highest sum of money that one can borrow at any point.
Depending on an individual’s financial wants, he may choose to use all or just a portion of his credit limit. Every time this person pays for an item with his credit card, the remaining available credit decreases.
Conversely, with closed-end loans, individuals are not allowed to borrow again until they have repaid them. As one makes repayments of the closed-end loan, the loan balance decreases. However, if the borrower wants more money, he needs to apply for another loan from scratch. The process entails presenting documents to prove that they are credit-worthy and waiting for approval. Examples of closed-end loans are a mortgage, auto loans, and student loans.
Summary:
Most loans can be accessed from lending institutions, which range from commercial to microfinance banks and other credit issuing institutions. Banks, credit unions, cash advances all regulated by Central Bank and serviced by the Credit Bureaus are valid means of getting loans, terms and conditions and conditions, however, differ by institution and type of loan been solicited. Financial consumables also include Credit facilities
If you are interested in asking a loan, it may be advisable that you use a loan calculator, so that you are sure of your credit standing before applying for your loan.
How can you access the loans?
Loans are easily accessible from most financial institutions; it all just depends on what type of loan you’re looking for; either it’s for personal use or business. Banks, credit unions, cash advances are valid means of getting loans, and there is a plethora of other loan service providers popping up each day, each with its terms and conditions.
Conclusion
Now that we have broken down the types of loans, you know which would meet your needs perfectly. Be sure to check out the interest rates on loans before you collect them, as well as the payback period.