In the financial world a loan is a type of advance payment made to another party with the aim of purchasing items, paying debts, for any other purpose. In finance, a loan is a lending of funds by one or more persons, companies, or other associated entities to another person, companies etc. The recipient is generally liable only to pay interest on the debt and subsequently to repay the total principal amount borrowed and/or to clear his or her outstanding balance before it becomes due. A loan typically includes secured and unsecured forms of loans, which are both used in different ways. For the purposes of this article, we will concentrate on the unsecured form of loan.
Secured loans are loans that secure the loan giver’s collateral, usually in the form of a house or car, against the loan. This ensures that the loan giver cannot leave the property until the loan has been repaid. While unsecured loans are loans that do not require collateral. They can be taken by either the lender or the borrower.
The various types of loans include variable rate loans, fixed rate loans, interest-only loans, and pay back option loans. Fixed rate loans feature a set rate of interest that remains unchanged for the life of the loan while variable rate loans have a mop rate that fluctuates according to prime rate changes. Interest only loans have only principal balance, without any interest, and are usually pay back only upon maturity of the principal balance. Pay back option loans can have any combination of these features, but must always have a payment program.
The most popular secured loan product is the gold loan. The gold loan is similar to a traditional home equity loan, except that it offers an alternative asset as collateral. If the borrower defaults on the loan, the value of the gold loan will be returned to the lender. A secure is more likely to get approved than an unsecured loan, because of its greater safety.
Unsecured loans can be used for many purposes. Businesses frequently obtain a loan in order to purchase new equipment. Credit cards are used often for making small purchases. Cars may be financed using car loans. Home owners may use a home equity line of credit (HELOC) when they need cash to finance major repairs or remodeling projects. As with any loan, securing a loan is a better idea if the anticipated use of the collateral is a substantial amount.
In addition, unsecured home loans can be used for debt consolidation, home improvement, and college funding. In most cases, borrowers do not even have to own the home to obtain one of these types of loans. Borrowers who own their home are able to obtain a home equity line of credit (HELOC) through their mortgage company, but this option does not allow them to take advantage of low interest rates that may be offered by some lenders. HELOCs allow borrowers to borrow money based on the equity that is contained within their property. In short, it is possible to obtain a home loan that has a higher interest rate than credit cards, while still offering a greater amount of security for repayment.