Loans are of various types with different Specifications, Limitations and Clauses. If we simply define loan we can say that loan is an amount/anything which you lend to someone who needs that particular thing/money and agree to return it back in due time by fulfilling all limitations, criteria & specific rate of interest defined by the lender. Loans on one side is a backbone to anyone who is master of monetary activity. Loans are like blessing for those who wants to purchase anything but can’t purchase due to limited amount of funds. Any financial organization, bank or individual can provide you loan, as it’s a liability and you have to repay.
While writing this I realized that some people are unfamiliar to loans and their types. It’s quite surprising when someone who are good with numbers ask seemingly elementary questions but it’s not a big issue now, as this whole topic refreshes your knowledge providing answers to your elementary questions. You may know about different debt vehicles or types of loans but in actual are you aware of their inherent features? If you are not then just continue your journey of reading with us to know about loan and its all types including their features and working strategies.
1. Open-Ended Loans:
Loans you requests to borrow again and again are Open-Ended Loans. All lines of Credit and Credit Cards are extensively used and very basic simple type of Open-Ended Loans. When you borrow this loan you are allow to purchase within pre-defined credit limit. Whenever you purchase your available credit limit reduces until you pay, results in a raise to your available credit limit granting a permission to use your current credit card again and again.
2. Closed-Ended Loans:
Closed-Ended loans are such type of loans which you can’t request to borrow again and again easily. In Closed-Ended Loans its must to repay all amount by the end of decided time span and date. Repaying fulfills all the limitations and clauses mainly include interest and financial charges pre-defined in the credit agreement which borrower willingly signed. Common types of Closed-Ended Loans are Mortgage Loans, Auto Loans and Student Loans.
3. Secured Loans:
In this type of Loan burrower agrees to pay back and also provides security (an asset, property, or anything) which borrower possesses and which also have worth to be given as security. This type of Loans are quite safe for Lenders because in case burrower is not in a position to pay back (all sum of money/or a little sum left) lender have all rights to overtake borrower’s possession which was provided as security.
4. Un-Secured Loans:
Un-Secured loans are loans with high risk factors as burrower provides no security while asking for loan. Lender gives loan with quite high rate of interest to borrower as compared to other types of loans. Lender is not secured only plus in this loan is that if burrower fails to payback loan then lender can take action or rightfully sue borrower.
5. Conventional Loans:
Conventional Loans can also be known by a term Mortgage Loans. These loans are uninsured by any Government agency (Federal Housing Agency, Rural Housing Service or Veterans Administration). They are conforming loans, as they follow guide lines by fulfilling funding criteria defined by Banks and Government Sponsored Enterprises (Fannie Mae& Freddie Mac).
6. Un-Conventional Loans:
These loans are also referred as non-conforming loans which fails to fulfill funding criteria defined by Banks or any Government Sponsored Enterprises. Such types of loans are usually funded by hard money lenders or private institutions. On large scale real-estate loans are approved as non-conforming loans because in this case burrower’s financial status or property fails to fulfill pre-set scale of Banks or Government Sponsored Enterprises and due to this reason private money flexibility allows funding on deals at extensive range.
7. Demand Loans:
Loans without any pre-defined clauses, limitations mainly without any pre-set condition of time duration of repaying to lender. Lender can demand his loan from burrower whenever they want that’s why they are also called as Money at loan or Call Loans. In this category of loan the rate of interest is floating which clearly helps us to understand ‘Demand Loans’ because all limitations, clauses depends basically on demand& will of lender.
8. Short-Term Loans:
Short-Term loans are such loans in lender approves a small amount of money and burrower has to payback it back within time span of three years.
9. Long-Term Loans:
Long-Term refer to loans that are granted for long time period, more than three years. This type of loans are given for large sum of money thus resulting in repaying of loan in slow &long time period. If we compare rate of interest of long-term loans with the short-term loans we’ll come to know that apparently rate of interest in long-term loans is less than the one in short-term but if we talk about fact& figures by calculating all the interest paid from start till end of the long-term loans we’ll know that they have higher rate of interest than short-term loans.