January 18, 2013 in Loans
“Loan” is the most common term in the financial dictionary from quite awhile now. There are various types of loans in the market which caters to every individuals needs in a unique and different way, however, before moving on to the types of loans we need to see what loans actually mean. Loans are the money which is lend to an individual through any financial institution, mostly a bank. Loans are all structured in a different and unique way and it’s usually the lenders who mould it into a way which is feasible for both the borrower and the lender, so let us now see the most common types of loans available in the market.
- Line-of-credit loans
These types of loans are the most useful for small firms, since it is usually for a short period of time. This loan mostly increases the cash in your business account to the maximum limit of your loan contract. The interest is paid on the actual amount until it is paid back. Line-of-credit loans are basically for business cycles and the working capital and you cannot purchase material or land from it.
2. Installment loans
These loans work from the month to month basis in which every month an amount is given back in accordance to the interest and the amount that has to be returned. These loans help the business in all sorts of ways and from the beginning of the loan the interest is calculated and then the money is returned back in installments by an individual or a firm. If a person pay’s the installments before the final date the interest is adjusted to be less and the installment is accepted.
- Balloon Loans
These loans are very different from all the other loans in the market and in these loans you need to pay the interest on a particular loan during the actual time the loans are taken and on the last day you make a final payment which is referred to as the balloon payment. This loan is mostly useful in business’s in which the firm has to wait for the payment from the client.
- Interim Loans
Interim loans are another type of loan which the contractors take when constructing a building. When the construction is finished on the building the mortgage on the property is used to pay the interim loan.
- Secured and unsecured loans
Loans can either be secured or unsecured. In an unsecured loan there is no payment on the loan if you default from it. The lender gives you the loan because you’re considered less risky. In a secured loan, however there’s less interest and it require a form of collateral also. Collateral is almost always associated with the purpose of the loan and loans which are associated with receivables always finance towards growth. The banker creates credit and lends up to 75 percent of the amount which is due and the inventory which is for secure loan is up to 50 percent of the sale price.
So these were some of the terms used in finance related to loans and as seen here there is no single type of loan in the market and all loans differ from one another in one way or the other.