Loans have made almost all kinds of purchases simpler and hassle free. Today, whether you wish to buy a large item like a house, an appliance or something less significant like a mobile phone. The fact cannot be refuted that loans have added a different dimension to people's lives. The quality and standard of lives which everyone is living in current times, has been determined by various types of loans, up to a large extent. Hence an understanding of what a loan is, what are its different types and how it functions, is essential.
So, what is a loan?
To put it simply, a loan is when a person, institute or entity lends money or a particular thing of monetary value to a borrower. The borrower undertakes the responsibility of returning that amount of money or thing, by adhering to the conditions imposed by the lender, within a stipulated period of time which is known as the tenure.
Here are the different types of loans which people take:
Loans with open end
It is quite simple to understand the working of an open end loan. Credit cards and lines of credit fall under this category. The borrower keeps borrowing these repeatedly during the course of time. You can continue to apply for this type of loan after repayment of the first one. This is the reason why they are called open ended loans.
Loans with closed end
Closed end loans include mortgage loans, auto loans, and student loans. If you take these loans once in your lifetime, you cannot apply for the same twice, even after repayment of the loan. Hence they are called closed ended loans. However, you can avail these loans on someone else's name.
Short Term
The people who into seasonal business or small level business go for short term loans mostly. This type of loan is borrowed for a very short period of time, less than 1 year. This is mainly to meet immediate capital needs of an existing business on a small level.
Medium Term
The tenure or time period for which a medium loan is borrowed ranges from 2 to 10 years. Usually, this type of loan is the choice of businessmen who have capital requirement to buy assets and various other requisites for production.
Long Term
Long term loans function differ slightly from the short and medium term loans. Here, the borrower applies for a long term loan if there is a requirement to borrow equipment, heavy machines, land etc. Home Loan is a fine example of loan term. The tenure for it is usually 10 years or more and collateral security is required by the lender, before granting the loan amount. Also, a certain part of the loan is to be paid by the borrower initially.
Secured Loans
Secured loans are only provided by a lender when the borrower has a collateral for security. These loans come with a lower rate of interest. Failing to repay the loan would entitle the lender with the right to take over the security collateral and use it to repay the amount lent.
Unsecured Loans
These loans do not reply on security collaterals and because of this, come with a relatively high rate of interest. The borrower must have a clean credit history and a stable income, to apply for an unsecured loans. Failing to repay an unsecured loan subjects the lender to recover the loan through lawsuit. Personal loan are unsecured loans it means there is no security against the loan.It generally comes with a higher interest rate but the disporsal tim
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About the Author
Arwind Sharma is the author of this artilce and loves to write on financial terms and loans. Now Get Secured Loan and unsecured loan quickly.For more information visit niw
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