Types of Loans
Let’s look at the whole variety of loan products. This is important because the main rules for their granting and repayment depend on the type of lending, the list of necessary documents that the potential borrower must submit to the bank and the procedure for their consideration by banks, the maximum possible loan amount, interest rate and many other conditions of loan agreements.
When choosing a loan, it is very important to study all the advantages and disadvantages of the types of loans that interest you. This is necessary in order to choose the most convenient and profitable loan, without unnecessary fears and overpayments.
Types of Loans for Individuals
There are two types of loans for individuals with a targeted focus: For real estate financing, this is a bank granting loans for the purchase and construction of housing, garages, arrangement of country estates, etc. As a rule, these are long-term loans. For consumer purposes – these are loans granted for consumer purposes. It can be: – allocation of funds for the purchase of any goods or services, for example, furniture, appliances, tourist packages, tuition, treatment; – car loans – loans provided by the bank for the purchase of cars, both new and used; – credit issued in cash or credited to the card; – overdraft lending – the provision of a loan in excess of the cash balance on the borrower’s account by bank transfer either by transferring funds by the bank to pay for settlement documents submitted by the borrower or by using funds in accordance with the instructions of the borrower through the use of payment instruments (check, debit bank payment card, other instruments) or by issuing cash to the borrower. All variety of loans for consumer purposes can be classified according to certain criteria.
According to the method of establishing the purpose of lending, loans are:
- Targeted: when the loan agreement clearly indicates what the loan is allocated, and they cannot be used for anything else. In this case, the bank requires the submission of documents confirming the purchase of goods or services (education loan, car loan). Often, when receiving a target loan, a person does not receive money in hand, as the bank transfers it directly to a store, car dealership or university;
- Non-targeted: resources allocated by the bank that the borrower can use at his own discretion without informing the lender about the goals. For example, a consumer cash loan. As a rule, such loans are smaller and are issued for a shorter period than the target loan. By the method of providing repayment, there are loans:
- Secured means the presence of any guarantees of repayment of the debt of the borrower. These guarantees include pledges or sureties of third parties.
- Unsecured loans, respectively, are not provided with such guarantees. Secured loans, as a rule, have milder conditions than unsecured, since the risk of their non-repayment is much less. By term, loans are classified into short-term and long-term. Short-term loans include loans with a full repayment term, originally established by the loan agreement, up to one year inclusive, as well as loans provided with revolving credit lines and with overdraft lending. Long-term loans include all other loans.