Types Of Loans


Types Of Loans

In economics, a loan is a borrowing of money by one or many people, institutions, businesses or other entities to others, companies etc. The borrower is then usually liable to repay principal and interest on that loan until it is fully repaid. A loan differs from other types of credits in that there is an obligation to return the borrowed amount with interest by the agreed time or the agreed price. Although a loan is generally thought of as something which occurs only in business and commercial credit, the definition of a loan can also extend to other situations such as personal credit, home equity loan, car loan and many others. Loans are often used as a mechanism for acquiring necessary capital especially in times of need.

There are many different types of loans. Home Equity Loans are used when the home is used as collateral and when the value of the home is over the prevailing market value. Commercial Loans are used when the borrower wants to borrow money to build or restore a business enterprise. Personal Loans are mainly used to meet emergencies and to meet personal desires. These loans are also known as signature loans, since the borrower signs over the deed of his property to the lender. Debts are those debts which are not secured but are owed either by the person who is borrowing the money or a third party.

These days most businesses use one form of financing or another to expand their operations and finances. For example, with the advent of the internet, various forms of loans can be sourced from online lenders through various websites. Internet based Small Business Financing allows small businesses to access the money they need to either expand their business or to start up a new venture. Many small businesses are using these kinds of loans for both, to access cash for growth purposes and to purchase land or real estate which they can use to create new jobs.

Another kind of loan is a merchant cash advance loan, which is a short term loan which is obtained through a lender and it is similar to a personal loan, but is under a different roof. Merchants who need to raise quick cash for one reason or the other go in for merchant cash advances. These loans are unsecured in nature, but the lenders require collateral in the form of credit cards, store cards, or a certain amount of collateral which can be kept with them until the loan is paid in full. If the borrower does not pay the loan amount, he has to give this collateral or risk losing his possession of the collateral. Most of the lenders do not insist on these security documents.

The interest rates and loan charges are normally higher for unsecured loans, but there are some exceptions. Sometimes, the credit card APR (Annual Percentage Rate) is higher than the general interest rate applicable for all types of loans, especially if you have a poor credit score. In such cases, lenders usually charge high interest rates on the loan amounts and also charge extra interest on the monthly repayment. The repayment of these loans is generally very fast as well.

There are some other types of loans like paycheck loans, which are very helpful for those who are short of cash. With these loans, you borrow money from your employer or a relative. You have to repay these loans as per your salary period. For a person who takes a regular income, this is an easier and convenient way to borrow money. If you are a person who has a irregular income, this will be difficult for you to manage. You can try out paycheck loans if you need urgent cash.