Bank Loan: Types and Things to Consider Before Applying for a loan

What is a Bank Loan?
A Bank Loan is an amount of money you borrow for a short period within an agreed repayment schedule. The repayment amount will all depend on the size and time of the load and also the rate of the interest.

However, the recipient and the lender must come to an agreement on the terms of the loan before any money changes hands. But in some cases, the lender requires the borrower to provide an asset up for collateral, which will be outlined in the loan document. A common load for American households is a mortgage, which is taken for the purchase of a property.

bank loan

image by The Balance

Loans can be given to corporations, individuals, and also governments. Loans are generally most suitable for: paying for assets, starting up a business and also instances where the amount you need is not going to change.

-- Advertisement --

Types of Bank Loan

It is always a good idea to save up money before making a huge purchase. But the truth is that it is not always possible, that is especially true for expenses just like college education, a car or house, or even emergencies you don’t expect.

Meanwhile, if you can’t save money in advance, you can take out a loan. But you need to first understand what types of loan to select because there are some specific loans for certain purchases. Below are the types of loans that can help you select from.

Personal Bank Loan

These are the broadcast type of loan category and typically have repayment terms between 24 and 84 months. A lot of people commonly use this type of personal loan for things like Vacations, weddings, medical renovations, home renovations, relocating to a new city.

Auto Loans

This is another type of loan but a secured loan that you can use to buy a car with repayment terms between three to seven years. so in this case, the collateral for the loan is the car itself. The lender will repossess the vehicle if you do not pay.

Student Bank Loan

This type of loan is meant to pay for tuition, fees, and also living expenses at an accredited school. This means that you can’t use students to pay for specific types of education, like coding boot camps or informal classes.

-- Advertisement --

Mortgage Loans

This type of loan helps you finance the purchase of a home, and there are so many types of mortgages available. Banks and credit unions are the most common mortgage lenders.

Home Equity Loans

You might be able to use a home equity loan if you have equity in your home which is also known as a second mortgage. The equity you have in your home, the portion of your house that you own, and not the bank, secures the loan.

Payday Bank Loan

These are short term loan, which normally just last until your next paycheck. These loans are not credit based, so they dont need good credit to qualify. But these loans are often predatory in nature for some specific reasons.

Other Types of Bank Loans

  • Title Loans
  • Pawn Shop Loans
  • Small Business Loans
  • Family Loans
  • Land Loans
  • Pool Loans
  • Boat Loans

Advantages of Term Loans

  • The loan is is repayable on demand and so available for the term of the loan,at least three to ten year, except you come to an agreement and conditions.
  • Loans can be tied to the lifetime of the equipment or some other assets you are borrowing the money to pay for.
  • Also at the beginning of the term of the loan you might be able to come to an agreement, which simply means that you can only play interests for a certain amount of time while repayment on the capital are freezed.
    There might be an arrangement fee that is paid at the beginning of the loan but not throughout its life.

Disadvantages of Loans

  • Some Loans are not always flexible
  • There might be a charge of you wish to repay the loan before the end of the loan term. Most especially if the interest rate on the loan is fixed.
  • You could also have a bit trouble making monthly repayment of your clients do not pay you regularly. Which will cause cash flow problems.

Things to Consider Before Applying for a Bank Loan

There are few things you should first look into before you plan to apply for loans to be on a safer side. They include”

Credit score and credit History

If the individual has a good credit score and also history, then it shows the lender that he or she is capable of making repayments on time, So the higher the credit score, the higher the likelihood of the person getting approved for a loan.

Income

Another thing to consider is income, before thinking of applying for loan. He or she have to submit pay stubs, W-2 forms and a salary letter from their employer. If the applicant is self-employed. Then all he or she will need is to submit his or her tax return for the past two or more years and invoices where applicable.

Monthly Obligations

It is decisive that a loan applicant evaluates their monthly obligations in addition to their income. For example, a person might be receiving a monthly income of $7000 but with monthly obligations amounting to $65000. Lenders ,might not be willing to give loans to such individual. It explains why some lenders ask applicant to list all their monthly expenses such as house rent and also utility bills.

Bookmark the permalink.

Leave a Reply