Types of Loans!

Different types of Loans

Whether you are looking for a new home or you need to do something that is considerable, it doesn't matter. There will be some important times when you will essentially have to acquire the services of a loan. You will have to choose from the different types of loans that are available to you. These loans are extremely popular and each one of these is useful. Thus you will have to make sure that you choose the type of loan that is the most appropriate for you.

A secured loan

With the help of a collateral loan or a secured loan, you will be able to leverage your personal property in order to obtain your loan. If you default under any circumstances, your property will automatically be transferred to the lender. The loan amount and the interest rate can also vary depending on the property's value. A higher property value can get you a very large amount of loan.

Unsecured loans

Unsecured loans are not generally backed by any collateral. Thus the size of the loan and the interest rate is also determined by your income and credit history. The unsecured loans can also be called as signature loans or personal loans. If you are having a good income, the solid payback plan or sterling credit, these can be very good options.

Open end loans

An open end credit is given with a fixed limit line of credit and it can easily be borrowed again after you have repaid it.

Applying for a Loan!

The need for cash is never going to come with prior notice. In spite of the most well planned budget, chances are your calculations may go miserably wrong. The facility to be able to take loans comes in as a blessing during such situations. The need for loans may be backed by the desire to buy a new vehicle, get you home refurbished or any other personal reason. 

There are several money lenders willing to give loans at comfortable interest rates so that you can take care of your personal needs without being worried about the constraints of your budget. Traditionally, the idea of a loan was restricted to big amounts of money that are usually difficult to manage individually. However, this has now changed. People rely on loans for small amounts as well.

For those of you who are planning to get a loan in the near future, here is a basic guideline that you can safely follow:

Know your credit ratings!

Yes! If you are planning to apply for a loan, better start with procuring this detail as soon as possible. Most money lenders will refuse to entertain your request if you have a bad credit. Also, your credit rating helps you get a clearer picture about the maximum amount of loan that you can take.

Understand the different interest rates

If you are going to borrow money, no one is going to do it for free. The ideal process is that when a money lender gives you a loan, you are bound to pay back the principal amount with a fair component of interest. As an applicant, you must explore the interest rates being offered by different money lending bodies. You can also get these details over the internet within a matter of few seconds.

Compare different options

When it comes to borrowing money, you will have to skim through several lending bodies before you narrow down on choosing one. From leading nationalized banks to small scale money lenders, there are many people on the block that deal with offering loans. You have to invest the time and effort to choose the most feasible option that suits your requirements.

Read the agreement carefully

Once your loan application is approved, the lending authority will make you sign a deed prior to disbursing the required amount. Whilst signing the deed, we urge you to read every detail carefully. This deed carries all the information on the agreed interest rates, payment patterns and a lot of other things.

Why People Take a Loan

A loan refers to money that has been borrowed for a specific purpose from a financial institution like a bank or any other lender that must be repaid at the end of a set time frame.

Banks usually offer different types of loans for different needs of borrowers. Loans can be taken out for many reasons like financing higher studies, starting a new business venture, or buying a house, cars or other such amenities. Few of the specific reasons for which people take a loan have been discussed below:

To meet day to day and basic needs

In today's environment each and every individual is facing cash crisis due to rising expense. The situation has occurred because the income level is stagnant while cost of living has gone up many folds. This situation has created a gap between income and expense and therefore the common experience of cash shortage.

In this situation, at time people need cash to meet even the day to day and basic needs. These needs include buying groceries, paying mobile and electricity expenses, buying household items, repairing of automobile and so on.

To meet medical emergency

Today nobody knows how and when a medical emergency will occur. If any such unfortunate incident occurs, the one thing that becomes the most important to get proper care is to have sufficient amount of cash. Therefore borrowing loans to meet medical emergency is the most common reason for people.

For debt consolidation

Since today everybody is facing the pinch of an unpredictable economy, people resort to borrowing multiple loans to meet their various needs. However managing the repayment of multiple loans becomes a difficult task for most of the people. 

Therefore today people borrow a fresh loan of higher amount to consolidate many small loans. Debt consolidation means an arrangement in which you accumulate all debts into one and make only one repayment instead of several repayments.

To meet cosmetic surgical needs

This is one area which has seen tremendous growth over the last few years. Today's competitive environment requires that you are not only to be physically fit but also your appearance must be perfect. Even a minor scar on the face creates inferiority complex among the youth. Similarly a broken tooth reduces the confidence level.

Therefore to look good and feel confident, people opt for cosmetic surgery loans.

Loans for business needs

Meeting business needs is again one of the most common reasons for which people borrow loans. Today not only established business people choose to borrow money to meet their short term needs but also those who have just started their business opt for loans to meet their diverse needs.

Having discussed the reasons behind borrowing money, you should also know the various components of loans.

Components of a loan

There are three major parts of any type of loan: a principal, which is the amount of money borrowed, the time of repayment, by which the borrower must repay the money, and the rate of interest. The rate of interest is an amount additional to the principal that must be repaid by the borrower. 

You can consider it as a sort of fee charged by the loan provider for their services. When the rate of interest is low, the amount to be repaid is closer to the amount borrowed, making it easier to return the money.

Providing loan facilities is one of the primary tasks of financial institutions, and rates of interest are generally kept low enough to attract customers while still allowing viable and profitable trade-off for the establishments.

Another important aspect that you must be aware of is the responsibility of the borrower. Please find below the rights and duties of borrowers:

Rights and Duty of the borrower

While taking a loan, one must be careful to avoid unauthorized lenders that put the borrower in a compromising position, or ask for high interest that make repayment difficult. At the same time, as a borrower it is your duty to provide correct financial information and repay loans on time.

To conclude, today people borrow loans for many diverse reasons that range from personal needs to business requirements. However when you borrow loans, you must be aware of your rights and duties. One of the most important duties is to repay the loan as per repayment schedule.


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