A loan is when a sum of money is advanced to an individual on the agreement of payment of the principal amount and some interest. In financial systems, the attention paid is meant to cover the risk of the person who’s advanced a loan not paying back the loaned amount.
Loans are usually secured or unsecured. Secured loans are the kind that for the person or entity to give the credit you must provide some security which is regarding to act as collateral for the loan, this collateral is a cover that helps the entity advancing credit to recover their position in the event you default on payment. The other type of loan is the unsecured one which you do not have to give any security, such loans are not conventional and are usually given to persons whose credit score is high or have good relations with the body giving the loan. These loans present a high risk to the people advancing it because there is no security in case the person who is given the loan defaults payments. To learn more about these read more here.
Types of Loans: There are different types of loans depending on the need they cover:
- Mortgages. These are those kinds of loans that are given by financial institutions to individuals who want to buy houses but cannot afford to pay the whole amount upfront. They are meant to help home ownership to be accessible by spreading the repayment period over many years, the security for mortgages is the house you are buying itself meaning if you are not able to pay the agreed amount within the specified period the house is reposed and resold. The repayment period for these loans is spread over 10-15 or 30-year terms depending on the agreement and loan amount that is advanced see more about mortgages
- Student Loans. These are the other kind of loans that are common with the cost of tuition for college going higher students go to financial institutions to get a loan to finance their higher education. Student loans can be given by the federal government or private entities. Student loans advanced by the government are better because they have low-interest rates and the repayment terms are borrower-friendly.
- Personal loans. Other times individuals take loans for their expenses, such are the kinds that people choose to go on vacation. They are easy to get and do not require security the only requirement is the persons borrowing to have an average credit history record. Due to their high risk, the amount advanced is $1000 and below.
- Home equity loans. These types of loans allow homeowners to borrow against the equity they have built in their homes the loan amount that is given is calculated by getting the difference between the appraised value against the mortgage that you hold. These types of loans are taken to cover for home improvements and additions. Or in instances when the homeowner wants to consolidate a debt they have, compared to the other types of loans the interest charged on home equity is relatively low.