subject: The Concept Of Loan And Different Types of It [print this page] The Concept Of Loan And Different Types of It
A loan is a better word for a debt. In very simple terms a loan is what happens when a person usually a money lender or a bank gives the requester an amount of money with the belief of getting back the amount in a certain period of time. The lender can decide on a fixed interest rate that has to be paid by the borrower in addition to the repayment of the principal. Sometimes the payments have to be given in installments, for example they can be monthly, half yearly or annual. If these payments are not made as the contacts demands it the lender can extract a further penalty from the borrower.
There are many types of loans that are available:
(1)Secured loans- as the name suggests when an individual applies for a secured loan they keep something that they own as security. An asset such as a car or property on account of which the lender is assured that they'll be repaid the full principal on time.
(2)Subsidized loan- in subsidized loans, you have to start paying interest only when you start repaying the loan. During this time the interest is subsidized by the lender. For example subsidized student loans are provided if you can prove that your financial backing is poor. Once this condition is cleared you will have to start paying the interest.
(3)Unsubsidized loan- in unsubsidized loans, the borrower is charged from the moment the money is lent. And it is charged till all of the money is fully repaid. The borrower has to meet a certain set of criteria to be eligible for this type of loans. You can let the interest mount and then when it accrues to an amount which you can pay and you are in a better financial condition, you pay it the amount.
(4)Unsecured loan- in contrast too secured loans, unsecured loans are those in which money is not given on account of collateral. The main kinds of unsecured loans are credit card debts, personal loans, corporate bonds etc.
(5)Demand loan- demand loans may fall under secured or unsecured loans according to the wishes of the party that lends the money. A demand loan can ask for repayment at any point of the loan period. There are no particular intervals for repayment and no fixed rate of interest.
There are many more types of loans that fall under each of this category.
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