What is Loan?
A loan is a process of lending money from individual to individual or organization to organization
Why any person needs Loan:
Everyone needs help. The same is true for financial help. people most commonly need a loan of Automobile purchase, Medical expenses, Home improvement projects, Vacations etc.
Type of Loans:
All Loans are not equally created. Loans are varied by time, interest rates, amount of money and many more.
1. Open-ended Loans:
Open-ended loans are that kind of loans which has a fixed-limit line of credit that can be borrowed from again after they have been repaid.
2. Close-ended Loans:
The closed-end loan is a type of loan that charges the full amount when the term will end. The reimbursement includes all the interests and financial charges agreed at the signing of the credit agreement.
3. Conventional Loans:
A conventional loan is a type of mortgage that is not insured by any government agencies.
4. Conforming Loans:
A conforming loan conforms to the guidelines set by Fannie Mae. The main thing is the maximum amount of loan. This amount can vary depending on the home’s location—for example, a house in a high-income area can be eligible for a larger loan than one in a general income area.
5. Non-Conforming Loans:
Non-conforming loans are same as the conforming loans but they don’t confirm any qualification or guideline by Fannie Mae.
6. Secured Loans:
Secured loans are that kind of loans that are protected by security. which becomes the secured debt owed to the creditor who gives the loan.
7. Unsecured Loans:
An unsecured loan is a kind of loan that is issued by the loan takers credit meritoriousness than his verificatory.
Loan types are different because every loan has a different use. Loans can be varied by time lengths, interest rates, payment duration and by a plethora of other things.
*Open-End & Closed-End Loans:
The two basic type of Loans is open-end and closed-end loans. Open-end loans are better known as revolving credit, can be used multiple times for buying stuff.
Closed-end loans are used for a different cause or a different period of time. it’s also called Installment loans. The interest rate of installment loans varies. Mortgages, Car loans, Appliance loans, loans are examples of closed-end loans.
Mortgages: A mortgage loan or simply mortgage is a type of loan that gives you the facility to raise funds and buys real estate.
Pros and Cons of Mortgage:
Cost-effective– Compared to other types of loans, mortgage loan interest rates are lower.
Variety- You have a plethora of mortgage types, such as fixed-rate mortgage, variable-rate mortgages. It means you have more chance of finding the mortgage deal that fulfills your needs.
Secured- If you can’t keep up with the payments, you could lose your property. The mortgage is secured against the property you’re buying.
Student Loans: This type of loan designed to help students. pay for their education and the other fees, such as tuition, books and, and living bills.
Pros and Cons:
Avoid default- Consolidating loans will allow you to change the terms and lower your monthly payment.
No limitation(minimum or maximum)- There is no minimum amount to qualify and no maximum amount.
Loaner benefit loss- Some Loaner give extra benefits on interest rates if the borrower meets a certain condition.
Pay more – If you consolidate and extend the loan term, you could pay a lot more in interest. The longer you wait to pay off the loan, the more interest you end up paying.
A personal loan is a type of unsecured loan that will help you to tackle your emergency financial condition. You don’t usually need to pledge any security while availing a personal loan and your lender provides you with the flexibility to use the funds as per your need.
Multipurpose- A personal loan is perhaps the best bet to finance our dreams, with lenders offering it for any legitimate purpose.
Strict eligibility criteria- Lenders follow strict guidelines when it comes to eligibility criteria for personal loans.
Auto loans are like mortgage loans. They can help you afford a vehicle, but if you miss any payments then you will lose the vehicle. This type of loan may be distributed by the bank.
Pros and Cons:
paying some amount- The benefit of a car loan is that you can get a car without the need to pay its full amount, upfront.
Lend the car- In car loan, you are renting the car and the owner still remains to the bank or the lending agency. The car is not technically yours until you have fully paid the car’s amount.
Small Business Loans:
Small business Loans are a kind of loan that provided to small businesses for various causes by a lender. These loans may have less restrictive requirements, enabling the small business to protect themselves. these type of loans help entrepreneurs to help them build or expand a business.
Pros and Cons:
maturity time- Small Business loans can be provided to those businesses with a critical cash flow issue with long-term maturities and lower monthly costs.
Interest Rates- Rarely do banks give away money for free and the cost of money is referred to as the interest rate. Small businesses are risk-prone sop the loan interest rates are higher than big established businesses deemed riskier.
loans are high interest with short time loan, designed to fulfill the gap from one paycheck to the next, used typically by repeat borrowers living paycheck to paycheck.
Pros and Cons:
Instant cash transaction- Once you have been approved for a loan the cash will send to you instantly into your bank account or in your hands, available to be withdrawn from your bank account as soon as it has appeared.
Higher-Interest Rate- The one major disadvantage of this kind of loans is that loan is getting a small loan or overdraft from your bank is that you are going to have to pay a larger amount in interest to the loaner.