Types of Loan and things to consider before applying for loan

Loan: A Loan is a huge sum of money that one or more people or companies borrow from banks or other financial institutions so as to financially manage planned or unplanned events.

What is a Loan?

LOAN

A Loan is money that your borrow from a person for the main purpose or an unforeseen event with a promise to pay back. You ensure debt and have to pay the money back to the lender over time when you borrow the money.

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However, Loans can be given to corporations, governments, and Individuals. The main purpose behind taking out one is to get funds to grow one’s overall money supply.

Types of Loan(s)

Loans can be divided further into secured and unsecured, open-end and closed-end, and also conventional types

  • Secured and Unsecured Loans
    A secured loan is one that is backed by some type of collateral. for example, some financial institutions require borrowers to present their title deeds or some other documents that represent ownership of an asset, until they repay the loans in full. While Unsecured loan simply means that the borrower does not have to provide any property as collateral. The lenders are very thorough when assessing the borrower’s financial status with unsecured loans.
  • Open-End and Closed-End Loans
    A loan can as well be described as a closed-end or open-end. So with an open-ended loan, a person has the freedom to borrow over and over again. Credit cards and lines of credit are good examples of open-ended loans but they both have credit restrictions. While Closed-end loans, people are not permitted to borrow again until they have repaid their former debt. The process entails presenting documents to prove that they are credit-worthy and waiting for approval.
  • Conventional Loans
    This type of loan is not insured by government agencies such as the Rural Housing Service and it is often used when applying for a mortgage.

Things to Consider Before Applying For a Loan

There are a few things you should consider before applying or planning for loans which are explained below:

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  • Credit Score and Credit History
    When a person has a good credit score and also history, then it shows the lender is capable of making repayments on time, simply means that the higher the credit score, the higher the likelihood of the person getting approved for a loan. A person has a better chance of getting favorable terms with a good credit score.
  • Income
    Another thing to consider before applying for a loan is his or her income. However, for an employee, they will have to submit pay stubs, W-2 forms, and a salary letter from their employer. So if the applicant is self-employed, all he needs to submit is his tax return for the past two or more years
  • Monthly Obligations
    It is very important that a loan application evaluates their monthly obligations. For example, a person might be receiving a monthly income of $6,000 but with monthly obligations amounting to $5,500. Lenders might be willing to give loans to such people. That explains why most borrowers ask applicants to list all their monthly expenses such as rent and utility bills

Types of Loans

It is a good idea to save up money before making a huge purchase. But the honest truth is that it is always possible, most especially true for expenses just like a car, house or also emergences you don’t think can come up.

So if you can’t save money in advance, you can take borrow. But you need to understand what type of loan to choose from because there are some specific loans for certain purchases. Here are the types of loans that can be of help

  • Personal Bank Loan

These are the broadcast type of loan category and typically have repayment terms between 24 and 84 months. So many people use this type of personal loan for things like weddings, medical renovations, relocating to a new place, and even vacations.

  • Student Bank Loan
    This particular type of loan is used to pay for tuition, fees, and most especially living expenses at an accredited school. This simply means that you can’t use students to pay for specific types of education like informal classes or even coding boot camps.
  • Payday Bank 
    This is another type of loan but a short-term loan, which usually just lasts until your next paycheck. These loans are not credit-based, so they don’t need good credit to qualify.
  • Mortgage Loans
    This type of loan assists you to finance the purchase of a home, and there are many types of mortgages that are available. Banks and credit unions are the most well-known mortgage lenders.
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Some Other Types of Bank Loans

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

Advantage of Loans

  • The loan can be tied to the lifetime of the equipment or some other properties you are borrowing the money to pay for
  • Also at the beginning of the loan, you may be able to come to a conclusion, which means that you can apply interests for a main amount of time while repayments on the capital are frozen.
  • Loans are repayable on-demand and available for the term of the loan, at most three to ten years, except you come to a conclusion and conditions.

Disadvantages of Loans

  • You can also have small trouble making monthly repayment if your clients do not pay you daily. Which might cause cash flow problems
  • Also, some Loans are not always flexible
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