What are the types of loans?
People borrow money for multiple reasons. It could be to expand their business, buy a property, pursue higher education, buy jewelry, etc. Loans generally fall into two categories, Secured loans and Unsecured loans they later have their sub-categories.
Let’s first dive into what is secured loan is. A secured loan is a type of loan in which a lender retains your asset as a security or collateral to lend you money. Collateral can be your car, your home, or anything that holds value. It straight means if a borrower defaults or does not repay the loan then the lender gets the ownership of the asset.
Common types of secured loans are mortgages loan and auto loans.
In order to finance both the loan, you are required to provide an asset for collateral. The auto loan requires a vehicle as collateral and if you fail to repay the loan, then the lender can seize your vehicle.
When an individual or business takes a mortgage, the property in question is used to back the repayment terms. The lender maintains equity in the property until the mortgage is paid in full. If the borrower defaults on the payment, the lender can seize the property and sell it to recoup the funds owed.
Now, unsecured loans are precisely the opposite of secured loans as they are taken without security or collateral. If a borrower fails to repay the amount, the lender initiates a lawsuit to collect what is owed. Lenders provide funds on the basis of creditworthiness and promise to refund the borrower. Banks check the credit history of the borrower and any default in this may lead to the cancellation of the loan.
Example of unsecured loans is personal loans, education loans, and credit card transactions.
- Loans for the purchase of land
- Loans for home purchase
- Loans for the construction of a house
- House expansion loans
- Home conversion loans
- Loans for home improvement
- Balance transfer home loans
- NRI home loans
- Bridged loans
- stamp duty loans.
It is important to identify your requirement and apply for the right type of home loan.
Personal loans under which secured and unsecured loans are sub-categorized above, conventionally have a repayment term between 24 and 84 months and can be used for just about anything except for a college education or illegal activities. This type of loan is commonly used for weddings, vacations, emergencies, medication treatment, home renovation, debt consolidation, etc. This is the broadest type of loan.
Apart from that home loans are the most secured mode of finance that gives the opportunity to buy and construct a house of your choice. You can also apply for home loans online at a lower interest rate.
You might be baffled about loans available and what type of loan you should borrow. Whether you want to obtain a loan for financing a need or a want, there are different types of loans. It might be obvious to you what type of loan to borrow, but you might not be 100% sure about it. You just have to look at two significant aspects of personal and other loan types: whether they are secured or unsecured, and whether they carry fixed or variable interest rates.
