Loan Series: Different Types Of Loans
In business, a loan is an investment in a project, product, or service wherein a financial or non-financial resource is committed to finance the project until it becomes profitable. The value of the investment is determined by both time and money. The loan generally takes the form of a loan or lease in the form of a land contract, equity loans, venture capitalists, and / or merchant cash advances. In finance, a loan is any lending of funds by one or more persons, enterprises, corporations, or other legal entities to others, institutions etc. The borrower is obligated to pay interest and to repay the principal amount borrowed as well as on the assumption of a debt.
Finance is the distribution of money to achieve some purpose. Money is either lent or secured by a borrower’s assets or promises to pay. Borrowers usually utilize bank loans and other forms of lending made available by banking institutions to conduct certain business transactions. Money is also distributed through commerce when the purchasing power of currency exceeds the amount of physical gold and currency in circulation.
There are two major types of financial loans: secured and unsecured. A secured loan, as the name implies, is a loan where collateral, typically property, is required to assure the lender of repayment. Common tangible assets include home equity loans, auto loans, personal loans, trusts, life insurance, stocks, and bonds. Unsecured loans, on the other hand, do not require collateral and are the result of loaning funds to banks, credit unions, and other commercial lending institutions.
Both secured and unsecured loans have their advantages and disadvantages. For example, loans secured by property require fixed interest rates and terms; whereas unsecured loans can be subject to variable interest rates and term lengths. Secured loans also have more flexible payment requirements and terms. However, they also come with higher interest rates than unsecured ones. Finally, a loan secured by property gives the borrower greater influence over the decision of lending company because it represents a lien on the borrower’s property.
Loans are provided both by government bodies and private lenders. The government system provides various types of direct financial aid including the Federal Small Business Administration (SBA), Federal Home Loan Mortgage Corporation, the Urban Development Loan Corporation, and the Federal Reserve Board. Mortgage companies may either specialize in residential mortgages or offer a broader selection of mortgage products such as commercial and residential loans. Most private lending systems work directly with individual borrowers. Private lenders usually set the terms of the loan and impose reasonable penalties for late payments.
Aside from these government-sponsored financial institutions, there are other private organizations that provide loans to individual borrowers. These include banks and lending companies, which specialize in providing either specific types of loans or a wider range of financial products. Internet-based lenders may also be approached to provide a wide array of loans, depending on the borrower’s situation. Ultimately, it is important for borrowers to make sure that the loan they plan to take out will suit their current financial situation and circumstances.