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Different Types Of Loans

A loan becomes a necessity whenever we face a financial situation where our own income or savings are not enough to cover the expenses required. Lack of savings or not having enough savings can often lead to such necessity of taking out loans. Thankfully, there are different types of loans available to suit every kind of emergency, which can range from your vehicle needing unexpected repairs or a sudden need to travel or yet perhaps an unexpected illness sickness where costly medications are needed. There are loan types to suit every requirement.

Financial institutions normally are considered your best resource to take out different kinds of loans. Let us take a look at the types of loans online, broadly divides in three categories, to understand them better.

Secured loan

A secured loan is a loan in which the borrower guarantees some asset as collateral for the loan. A mortgage loan is a very common example of these types of loans. In this arrangement, the financial institution is given security, in lien on the title to the house, until the mortgage is paid off in full. In case there are any defaults on the loan by the borrower, the bank would then have the legal right to repossess the house and sell it, in order to recover sums owing to it.

Another example of secured loans is a loan taken out to purchase a new or used car. However, the duration of the loan period in this case is considerably shorter, corresponding to the useful life of the car. A stock hedge loan is a special type of secured loan where the stock of a borrower is hedged by the lender against loss, using options or other hedging strategies to reduce lender risk

Unsecured

Unsecured loans are financial loans which are not secured against the borrower's assets. Under many different guises or marketing packages, these loan types may be accessible from financial institutions. Some common examples are: credit card debt, personal loans, bank overdrafts, credit facilities or corporate bonds. The interest rates applicable to the unsecured loans may vary depending on the lender and the borrower. These may or may not be regulated by law.

Demand

Demand loans are short term loans. Having no fixed dates for repayment, these kinds of loans carry a floating interest rate which may change according to the prime rate. They can be "called" for repayment by the institution which is lending the loan at any time. Demand loans may be unsecured or secured.

We are sure that the kinds of loans discussed in the this article will get you more educated on loans and help you make the right decisions while taking out different types of loans.


 
 
 
 
 
 
 
 
 

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