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If you have never received a loan to purchase something, you are certainly in the minority! Loans can be a great thing, but they can also get you into trouble. One of the keys to being financially successful is understanding when loans are a good solution for your situation. Loans are never a good idea if you don’t have business to invest the loan in order to pay them back in the required time frame. Let’s explore what a loan is and types of loan
What is loan?
In finance , a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations etc. The recipient (i.e. the borrower) incurs a debt, and is usually liable to pay interest on that debt until it is repaid, and also to repay the principal amount borrowed.
Loans are typically categorize into secured or unsecured . A secured loan involves pledging an asset (such as a car, boat or house) as collateral for the loan. If the borrower defaults , or doesn’t pay back the loan, the lender takes possession of the asset. An unsecured loan option is preferred, but not as common. If the borrower doesn’t pay back the unsecured loan, the lender doesn’t have the right to take anything in return.
These may be available in financial institution such as bank under different packages which includes:
• credit card debt
• personal loans
• bank overdrafts
• credit facilities or lines of credit
• corporate bonds (may be secured or unsecured)
• peer-to-peer lending
The interest rates applicable to these different forms may vary depending on the lender and the borrower. Although,Interest rates on unsecured loans are nearly always higher than for secured loans because an unsecured lender’s options for recourse against the borrower in the event of default are severely limited, subjecting the lender to higher risk compared to that encountered for a secured loan.
Types of loans:
Personal loans are often unsecured and fairly easy to get if you have average credit history. You can get these loans at almost any bank. The good news is that you can usually spend the money however you like. You might go on vacation, buy a jet ski or get a new television. The booty trap of this type of loan is that the loan lend out are usually small amount and the Interest rate is higher secured loan.
This is most likely the biggest loan you will ever get! If you are looking to purchase your first home or some form of real estate, this is likely the best option. These loans are secured by the house or property you are buying. That means if you don’t make your payments in a timely manner, the bank or lender can take your house or property back! Mortgages help people get into homes that would otherwise take years to save for. They are often structured in 10-, 15- or 30-year terms, and the interest you pay is tax-deductible and fairly low compared to other loans.
A student loan is a type of loan designed to help students pay for post-secondary education and the associated fees, such as
tuition , books and supplies, and living expenses. It may differ from other types of loans in the fact that the interest rate may be substantially lower and the repayment schedule may be deferred while the student is still in school. The downside is that these loans can add up to huge sum of money over a $2000 in the course of four, six or eight years, leaving new graduates with huge debts as they embark on their new careers.
Paying Back Student Loans
Many student loan providers offer three basic ways that you can pay off your student loans:
First, you can choose to defer payments until after you’ve graduated. This means you won’t be required to pay anything on your student loan until you’ve graduated and the six-month grace period has ended. If you choose to defer all payments, your balance due will still accrue interest while you’re in school but you won’t be required to make any payments. In the long run, this is the most expensive way to pay back your loans since interest has considerable time to build.
The second option for repaying your student loans is to make interest payments while you are in school. These payments can be as low as ₦10000 or can cover the amount of interest that is accruing on the loan. When you graduate and have passed the six-month grace period, you will then begin making full payments on the interest and the principal. This method of repaying can save you a lot of money over the lifetime of your loan.
The third common option for repaying your student loans is to make full payments on both the interest and the principal while you are in school. This option can be hard for most students – after all, the reason you have a student loan is because you need help paying for college. However, if you can make full payments on your loan while you are in school, you can save a significant amount of money over the lifetime of your loan.
Homeowners can borrow against equity they have in their house with these types of loans. The equity or loan amount would be the difference between the appraised value of your home and the amount you still owe on your mortgage. These loans are good for home additions, home improvements or debt consolidation. The interest rate is often tax deductible and also fairly low compared to other loans.
Small business loans
Your local banks usually offer these loans to people looking to start a business. They do require a little more work than normal and often require a business plan to show the validity of what you are doing. These are often secured loans, so you will have to pledge some personal assets as collateral in case the business fails.
If you are in a pinch and need money quickly, cash advances from your credit card company or other payday loan institutions are an option. These loans are easy to get, but can have extremely high interest rates. They usually are only for small amounts: typically $1,000 or less. These loans should really only be considered when there are no other alternative ways to get money.
Comments below for any additional information and your questions are also welcomed
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