When faced with a sudden financial crisis the first place we look up to are usually banks and financial institutions. The fastest and most reliable way to arrange for some cash and get out of a financial trouble is to get a loan from a bank. But facing a difficult situation isn’t the only reason to apply for a loan, there are several other reason. Some one may use a loan to pay off a debt, some to buy a house, others may use it to travel abroad for education whereas someone may use a loan to go on a vacation. Even though loans provide money there are different types of loans.
It is highly recommended that as a borrower you should be aware of the different types of loans available and should also know about the qualifying criteria about each loan. The most common types of payday loan today include Personal Loan, Home Loan, Secured and Unsecured Business Loan.
Personal Loans: Personal loan is taking credit form a bank or financial institution for personal use. Personal loans can be used for almost anything including going on a vacation, buy new equipments, renovating home or even for paying outstanding bills. The borrower after getting the loan starts repaying it with monthly payment along with interest. The interest charged on a personal loan can be either a fixed interest rate or a variable interest rate. Personal loans are best suited for financing short term expenses.
Home Loan: A home loan is a loan taken to buy a home or residence. At one point of time the above definition was apt for home loans but now it has expanded and is used to cover all types of residentially secured loans. These payday loan today usually require collateral which in most cases is the home for which the loan is applied for. Once the borrower repays the entire loan amount with interest he/she gets complete ownership of the property. As the amount borrowed is big so loan terms in case of such loans is usually long ranging to 15-20 years. Interest rates in case of home loans vary from lenders to lenders and also depend on the down payment. The normal down payment is 20%.
Secured and Unsecured Business Loan: Business loans are loans taken by companies to fund their growth or overcome losses. In a secured loan the business uses a collateral against the loan. The collateral adds security to the loan as in case of default the lender takes physical possession of the collateral and uses it to recover the loaned amount. Savings, investments, assets, property and other things can be used as collateral but it has to kept in mind that the value of the collateral should be equal to or greater than the loan amount. Secured loans have the benefit of lower interest rates and easy loan terms.
Unsecured business loans are not backed by any collateral and hence have higher interest rates.
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