4 Types of Loans You Had No Idea About
First, we should understand that a loan is the amount of money borrowed with the expectation of returning over a given period of time, usually with interests. They are typically fixed amounts, e.g. $10,000 or $15,000. There are many types of loans. Clients should understand what types suit them, so they find it easy to use and return the money on time.
1. Close Ended and Open Ended Loans
Open ended loans are the ones you can frequently borrow. A good example is credit cards and lines of credit. They have the highest limits that borrowers cannot exceed. The amount available in your credit reduces each time you use it for purchases, while it increases each time you make payments. Open ended credits are loans borrowed once. They are settled progressively with little monthly payment as per the agreement. Usually entails huge amounts of money, and the borrowing process is somehow comprehensive and complicated.
2. Secured and Unsecured Loans
Secured loans have assets as collaterals. In case of a crisis, the lender can take the asset to cover the debt. Interest rates for secured loans are much reduced compared to the unsecured loans. A thorough inspection of the asset is always done before the loan is given to you. The lender can only allow you to borrow up to the maximum value of your asset. A very good example of a secured loan is the title loan. Other assets like a car, house, or equipment can be used as collaterals.
On the other hand, unsecured loans are taken without collaterals. They usually have high interest rates, and are more difficult to get. Qualifying for unsecured loan largely depends on your creditworthiness and your monthly income. In case of a crisis, the lender will be required to file the case in a court of law, where legal measures are then taken to determine the fate of the borrower. However, crises rarely occur since most lenders are creditworthy. No lender would want to ruin his/her creditworthiness, so he maintains his reputation for future loans.
3. Payday Loans
They are typically short term loans. We really do not advocate for these types due to their unbearably high interest rates. Most people always find it difficult to return payday loans. If you are in a financial crisis and need money urgently, look for other alternatives first before taking out a payday loan.
4. Advance Fee loans
Well, if you thought of taking an advance fee loan, think again. Non-authentic lenders have been using this trick to illegitimately take money from innocent clients. Although some of them are genuine, most are scams aimed at draining your money. Whether genuine or not, they all demand that you make an upfront fee in order to get a loan.
We are still updating our list, if you are a licensed moneylender and do not see your company here, feel free to let us know and we will add you in as soon as possible.
If you have borrowed from a licensed moneylender before, do let us know your experience with them!