When an amount of money is borrowed by an individual, or a bank or a lending institution for a specific reason or need it is called a loan. A loan is granted for various purposes. The wants and desires of humans are unlimited, and it’s very difficult for any individual to fulfill all the wants on his own without the aid of loans. Loans prove to be survivor tools during a financial crisis. For taking loans, an individual can pay off his debts and suffice his needs on an immediate basis.
There are different types of loans as every person has different requirements. There is a need to meet the requirements of different categories of individuals, various types of loans are designed. The types of loans include personal loans, home loans, educational loans, student loans, car loans, wedding loans etc. thus from the diverse form of loans, we can conclude that loans are granted for almost all the needs of individuals.
The basic categories of loans are secured and unsecured loans. All the above loans can be secured or unsecured. Secured loans refer to the loans which ask for an asset as collateral security or guarantee. In simple terms, the borrower has to keep an asset as a security for taking the loan which gives proof that he will repay the debt. The amount of loan to be given depends on the security that is put up. In any case, the borrower fails to pay his debts; the security that he has given will be in the possession of the lender.
Thus, the lender is at a zero-risk stage while giving a secured loan. Whereas, unsecured loans do not ask for security. Unsecured loans are a risk to the lender as the lender is not sure whether he will get right back to his funds after a stipulated period. Due to these differences, the interest rates also differ to a great extent. The normal circumstances are under the interest rates of unsecured loans is high.
Coming to the different types of loan, these can be either of the two categories stated above. Personal loans refer to the loans that are granted to people to suffice their normal basic needs. These needs may even be the day to day needs like payment of various bills or expenses. The reasons for taking personal loans are many, out of which the most common is the purchase of assets, payment of debts, starting of a totally new business or restructuring the old one etc. personal loan is granted at a rational rate of interest and is available in all banks and financial institutions like all the other loan types.
House is the basic necessity of all humans. A person requires a dwelling to carry on is life smoothly. He requires a place to reside. In India, to have a residence is a very big deal. It is very difficult to have a house because the rates are too high and to manage such a huge amount is a very big deal. Under such situations, loan plays a very important role.
Education is a vital necessity in today’s world. To withstand all the pressures a person needs to be educated. Sometimes it is difficult for parents to manage the funds for their children’s educational purposes. At such point in time, they can take the educational loan. These loans are given mainly for educational purposes.
Thus, there are many types of loans and it is in your hands s to which one is applicable for you. It is always preferable that you have sufficient knowledge about all the types before you apply for one.
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