Loans have helped many people and institutions to solve their financial challenges. On the other hand, the lending companies have become flexible both on types of loans they offer and the lending rates as well. This great variety has a stream of benefits but can be challenging to choose especially for the first time borrowers. However, loan advisors can come in handy at this point in guiding you on the types of loans that you can get conveniently for your needs.
Common types of loans
Secured and Unsecured loans
Secured loans – these loans rely entirely on an asset like property and land as the security. Therefore, the lender can repossess the collateral in case one does not pay the loan in time or ultimately defaults. Before one can access a loan, the assets must be evaluated to get the current value. One benefit of secured loans is low-interest rates.
Unsecured loans – Just as the name suggests, one does not need to have any security regarding collateral. The income and credit history is used to determine the amount of loan one will get. Unlike the secured loans, the interest rates are high to cater for the risk the lender is going through.
Open-ended and close-ended loans
Open-ended loans – these are the loans people keen on borrowing all the time. One good example is a credit card loan which has a limit. As people pay the previous one, they get another. The lender and the borrower have a long-term agreement o this lending program.
Closed-ended loans – This type of loans is the opposite of the above-discussed loan. It is borrowed only one time and should one need another, the process of application will be repeated. There is no long-term agreement with the lender. As soon as one starts to repay the loan, the balance reduces until zero when the loan is completely settled down.
Conforming and non-conforming loans
Conforming loans – these are loans that follow set procedures of borrowing and which in most cases dictate the maximum amount. There are set procedures that determine the maximum one can get like credit history or any other.