10 Different Types of Loans
01.Closed and open-ended loans
When a debtor borrows a fixed amount through a contract or agreement that has to be paid at a later time with a pre-defined interest rate it is a term loan or a closed-ended loan. On the contrary, open-ended credit also referred to as revolving credit can be borrowed repeatedly as far as the requirements are met. An example of open credit is a credit card, a person who owns a credit card can borrow money continuously within a certain limit depending upon the range of card either it’s a student card or debit card a platinum or gold card, as long as the balance is loaded in the card monthly.
02.Secured and Unsecured loans
Loans that are connected to a certain type of assets and the debtor can redeem if financial losses occur are referred to as secured loans as they come up with the security of money. They provide a safe heaven to creditors for investing money and increase the chances of huge money offerings for debtors. Mortgages come under this category of loans. On the other hand, unsecured loans do not provide any security of money as they lack any attachment with the assets, thereby holding an investor from investing a large amount of money.
Among other categories are student loans provided by the government, payday and consolidated loans come under the realm of loans
It is the type of mortgages that involves a fixed payment of the loan and the interest rate set in the first place over a lifetime. It is a more consistent and standardized form. However it comes up with a disadvantage for the debtor, he has to pay the same amount of interest throughout the years even if the interest rate falls.
04.Interest Only Loans
It involves paying the interest only on the loan which was set at first place for a fixed period. However, the loan is still present which burdens the debtor and it had to be paid afterward.
As the name suggests the interest rate over the debt may fluctuate depending upon the economic condition and money cost that is being borrowed over the time period in which the debt is to be paid.
Provided by the federal housing authority, these loans ensure a person’s security against late payment or lack of payment. They are usually provided to the low or moderate-income group. However, these loans are usually smaller in terms of required down payments.
These loans are provided to veterans, civil servants, and their blood relatives with authorization from the veterans’ department. No down payment is required however their size may be limited.
It protects an individual from private mortgages insurance by paying less than 20% of down payment and a combo of two loans can be borrowed.
The payment of interest takes place for a definite period of time and the rest of the payment is due for the pre-defined period. It burdens the borrower of paying the whole amount altogether.
In this type, a huge amount of money is borrowed usually in large business investments with greater interest rates.