TYPES OF LOAN

Introduction

A loan is essentially money given to someone who is in need of money, and a specific fee is charged to that person based on the amount of cash. Nowadays, people require money on debt for various purposes, like education, homes, vehicles, etc. This article provides a general overview of the types of loans offered to people by financial institutions.

The Significance of Loan

Money lending is an important process in the modern economy. Banks and financial institutions are the main intermediaries for availing the facility of money lending. The rationale behind this is that banks act as a bridge between those who have surplus money and those who are in need of credit to fulfil their needs. In this way, money circulates in the economy. A loan increases the growth rate of the economy by providing money to those who are in need of a loan. For more information click https://sumo.com.sg/.

Types of loans

There are various types of facilities that money provides to a person. Loans are classified under two heads , i.e., secured and unsecured loans. Secured loans are those in which a person gets money by pledging an asset or collateral security to financial institutions, and if the borrower does not repay the amount of the loan ,then that security will be forfeited and the bank will recover the amount from the security along with the interest rate. Unsecured loans are those loans which do not require any security. The person will get cash on the basis of his credit score and payment history along with the interest rate.

Under secured loans, a company can provide for different purposes. These are-

  • A loan against property is one in which an individual pledges any property to the banks in exchange for money.
  • Secured loans also cover shares, mutual funds, gold, etc., where an individual gives his valuable security to the banks and gets money in return for the asset.
  • It also provides money against  the cost of insurance policies and avail credit to purchase a house.

Unsecured loans usually grant credit for personal requirements of the lender and carry a high rate of interest and offer liquidity to the lender. Unsecured loans are provided against vehicles and short-term business loans but do not require any security.

Conclusion

There are different types of loans offered by various financial institutions, banks, and even individuals. Secured loans are those which are given in exchange for any valuable asset, whereas unsecured loans are given on the basis of the credit history of the person.