What is loan ?
Loan means lending of money by one or more individuals , organizations , or other entities to other individuals, organizations etc.
Whom we are giving the plans is known as recipient ( i.e. the borrower) , he usually liable to pay interest on the debt which was taken by borrower until it is repaid.
People borrow money for various reasons. It could be to expand their business, to fund higher education, to buy a home or car , to get a ring for their girlfriend or wife .
We need loans to fulfill our desire. Sometime we don’t have much money for fulfilling our need on that time we take loan and after some time we pay it with interest.
Categories of loans
Loans are generally fall into 2 categories.
1) Secured 2) Unsecured
Secured loans are those loans for which a borrower keeps some asset as surety or collateral to borrow money.
Collateral can be your car , your home , or anything that is valuable.
Now come to unsecured loans . Unsecured loans are taken without keeping a collateral.
If the borrower defaults on this type of debt , the lender initiates a lawsuit to collect what is owed.
Types of loans
1) Personal loans –
Personal loans taken for the personal purpose like emergency expenses, weddings or home improvement projects and it is usually unsecured, that is they don’t require collateral.
2) Auto loans –
Auto loans are taken by person when he / she buy any vehicle . It is secured loans . Auto loans terms generally range from 36 months to 72 months , although longer loan terms are becoming more common as auto price rise .
3) Student loans –
This loan taken by students to pay the college fees . They are available from both the federal government and from private lenders .
Federal student loans are more desirable because they offer deferment, forbearance, forgiveness and income – based repayment options while student loans from private lenders lack benefits such as loan forgiveness or income – based repayment plan .
4) Mortgage loans –
Mortgage loan covers the purchase price of a home minus any down payment. The property acts as collateral, which can be foreclosed by the lenders if mortgage payments are missed . Mortgage are typically repaid over 10, 15, 20 or 30 years .
5) Home equity loans –
A home equity loans or home equity line of credit ( HELOC ) let’s you borrow up to a percentage of the equity in your home to use for any purpose .
These are installment loans . You receive a lump sum and pay it back over time ( usually 5 to 30 years ) in regular monthly installment.
HELOCs usually have variable interest rates ; home equity loans have fixed interest rates .
6) Credit – Builder loans –
It is designed to help those with poor credit or no credit file improve their credit, and may not require a credit check . The lender puts the loan amount ( generally $300 to $ 1000) into saving account. You then make fixed month payments over 6 to 24 months .
Before you apply for credit – builder loans make sure the lender reports it to the major credit bureaus ( Experian , TransUnion and Equifax )
7) Debt – Consolidation loans –
This is a personal loans which pay off high interest debt , such as credit cards . Consolidating debt simplifies the repayment became it means paying to one lender instead of several.
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