Financing has become one of the most activities that we have to deal with on a day to day basis. There are two ways in which you can finance your monetary needs, internal source and external source. Though people are looking out for loans even for their most common needs, financing is going to be a great decision to make if you own a large company or if you are into some business. These are cases where you will have to make huge investment decisions and financing will be an issue to talk about.
So talking about finance, you can either self-finance your needs, which is the internal source or look for an external source. An external source is when you are looking for a third party, like a financial institution to finance your needs. So if you are choosing to external finance then these are the types of loans that you should be aware of:
Types of loans:
In secured loan you are securing the financial institution with an asset against the loan that you have borrowed. The financial institution, be it a banker or any private lender, will have rights to exercise control over the asset if you do not make your payment on time. These types of loan are known as secured loans. You will get back your ownership once you have repaid the loan along with interest.
Unsecured loans are the exact opposite of secured loans. The borrower need not have to place any asset as collateral to borrow these types of loans. So where does the lender benefit here? The loan processing can be quite difficult here, and also the interest rates are high when compared to the secured form of loans.
Open-ended loans are credit-based loans. A borrower can place loan requisitions again and again till he runs out of his credit. Every customer of the financial institution eligible for an open-ended loan will be given with a credit limit depending on the worth of his transactions in the past. Every time the client borrows, his credit decreases. The credit limit gets back to the original position when the borrower has repaid the whole amount.
Close-Ended loans do not have anything like credit limit, and also the borrower cannot borrow loans again and again once he has repaid the loan completely. These loans are known as close-ended loans. In case if you are in need of another close-ended loan you will have to work on the borrowing procedure again from the beginning.
Demand loans are widely known as short-term loans. These loans are lent by the financial institutions when borrowers request for loans that come with short repayment periods. It takes the name ‘Demand loans’ because the borrowers are expected to repay the loan when they are demanded by the financial institutions.
These loans are given on special conditions for certain sector of clients. A concessional loan, as the name suggests, carries less rate of interest when compared to the other loans. These are also termed as borrower-friendly loans as clients in most of the cases are beneficiaries here, while the financial institution is the benefactor.