Of the multitude of financial services available, loans are some of the best ways to secure short term financing for any number of reasons. There are numerous types of loans available that serve a variety of needs. As each loan has its own specific benefits, it is important to appreciate their individual characteristics.
Open and Close-Ended Loans
Primarily, loans can be grouped into two main categories. As the name denotes, open-ended loans are those which can be borrowed over and over again. Although many of us may be unaware of it, credit cards are the most common type of open-ended loans. One purchases a product on a certain amount of credit which is then deducted from the overall line of credit. Once a payment is made, the credit line once again increases and money can be borrowed against the card for subsequent purchases.
Conversely, close-ended loans are those which can be used only once. When the balance is finally paid in full, the loan is considered completed. Should one need to borrow more money, he or she must apply for an additional close-ended loan. Such examples could be a student loan or a personal loan to purchase a car.
Secured and Unsecured Loans
All loans can also be placed in two further categories; secured and unsecured plans. A secured loan is given based on using a borrower’s assets as collateral. The advantage is that interest rates tend to be much lower than unsecured loans. However, if a borrower defaults on such a loan, the lender has the legal right to seize any assets and use them to cover the remaining balance of the loan.
An unsecured loan is defined as when one borrows money and does not use any asset as collateral. As may be expected, these loans are much harder to secure and due to their risky nature, lenders will often charge much higher interest rates. If one defaults on these types of loans, the lender may employ the usage of collection agencies or file a lawsuit to recuperate any lost capital.
These categories represent a few standard categories of loan platforms that are commonly utilised to help secure an additional line of credit. One needs to carefully consider which option may be the best to choose, and an excellent way to obtain additional information is to consult with a qualified loan specialist.