Who doesn’t need money today? Every individual requires money to fulfill some or the either of their needs. For example some want to purchase their own house, start their own business, pay for their child’s education etc.
Everyone has some or the either desire to fulfill but are incapable of fulfilling those due shortage in the finance. Or else, a situation may come in one’s life where he/she needs a huge amount of money. And thus, for this purpose only loans are provided.
Loans are of different types like home loans, student loans, business loans, car loans, property loans etc. For example if a person in Gurgaon wants to start a business of his/her own then he/she will need business loan in Gurgaon, similarly if a person in Delhi want to purchase home in Delhi then he/she may need home loans in Delhi. In this way different loans are categorized to full fill different needs of people.
Understanding Different Types of Loans
As banks and financial institutions are today providing different type of loans to consumers, many people are confused about these different varieties of loan, living few educated and well developed ones. To help such people below we have mentioned about different types of loans in brief and what they actually mean.
Business Loans: Business loans are given to persons who are in need of money to start their own business. Businesses loans are also of different types such as working capital loans, Working Capital Loans, Accounts Receivable Loans, and Business only Loans.
1. Working Capital Loans: These are the type of loans about which people think of when they consider getting a business loan. These types of loans are taken by companies to cover accounts payable, wages etc. Companies which have good amount of sales but due to slow down in the business are incapable of financing their daily operations, need these kinds of loans. These types of loans come in two types, secured and unsecured.
- Secured Loan – A secured loan is a type of loan that involves some or the either kind of security in return of the loan. The security may be in the form of mortgaged home, insurance policy or vehicle etc. These kinds of loans are preferred by a lender as they have the option to take complete ownership of the security, if in case the borrower fails to repay the loan amount. Some of the common secured loans are mortgage loan, debt consolidation loan, auto loan, boat loan etc.
- Unsecured Loan – An unsecured loan is a type of loan that does not require a person to put down anything as collateral. In this the borrower does not have a co-guarantor or proof of home ownership. The loan is given as a lump sum, which the borrower has to pay back in installments. Unsecured loans diverge from the line of credit and this line of credit can be used again and again in a certain period of time.
- Some of the common unsecured loans are personal loan, student loans, some home improvement loans etc.
2. Accounts Receivable Loans: These are short term type of finance available when you are in a tough situation, but you are going to receive money in a particular time which you will pay back. Interest rates of these short term loans are usually higher than a long term standard loan. These types of loans should be taken in cases of emergency such as when you need to meet payroll, need finance to pay wages or some other necessities.
3. Business Only Loans: This type of loan is connected for utilizing the capital and resources of the business alone and no personal credit or record as a consumer of the proprietor. It is just accessible to a business with a strong record of reliable income, the long haul prospect of fluid operation, and very strong business credit scores.
Home Loans: These are type of loans that are borrowed from a bank or financial institution to either buy a house or renovate your own house. There are two important home loan categories and they are home purchasing loans and home improvement loans. These loans consist of either an adjustable interest rate or fixed interest rate.
Personal Loans: Personal loans are typically general purpose loans that can be used for paying unexpected expense, doing small home improvement etc. Personal loans often require strict qualification requirements. In personal loans lenders can automatically take the piece of property as payment for the loan.
Car Loans: Car loan is also a type of personal loan that is taken to purchase a car. Cheapest car loan rates are today made available for people in banks and financial institutions, for who wish to buy a car. In this the lender loans the borrower to purchase the vehicle and in return the borrower agrees to pay the lender the amount of loan plus interest on monthly bases.
Several Benefits of Taking Loans
Loans are quite common today. Loans help companies to buy raw materials, machines and many other things, to an individual they help them in fulfilling this needs. Although with business loans, personal loans are best to fulfill individual needs of a person.
Benefits of Different Types of Loans
- Small Business Loans: This type of loan helps entrepreneurs to start a new business or extend their old business.
- Payday Loans: These kinds of loans are given to employees in an organization, which they should repay within a short period of time.
- Personal Loans: These kinds of loans are taken to buy a car, bike, electronic item, gadget or any personal luxurious item.
- Student Loans: Student loans are taken for further studies of the student. It is offered to those who are willing to study further but do not have adequate funds.
Why One Should Take Loans
- With banks and financial institutions offering loans, taking loans have today become easy.
- Anyone student, employee, business owner any one can take apply for loan.
- The repayment options are easy and within the reach of common citizen, and even interest rates are low.
By Shanvi Singh