Dear Aspirants, It is time to turn up your preparation with ‘Banking Awareness’ section for upcoming IBPS/SBI and other bank exams. So the Team IG providing you with the study notes for Types of Loans use in Banking/Financial. Because all we know about the importance of Banking Awareness section in Bank exams.
A loan is the lending of money from one individual, organization or entity to another individual, organization or entity. A loan is a debt provided by an organization or individual to another entity at a certain interest rate, and evidenced by a promissory note. They specifies, among other things, the principal amount of money borrowed, the interest rate the lender is charging, and date of repayment.
The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan.
This is a loan in which the borrower pledges some asset as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral, in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain some or the entire amount originally loaned to the borrower. Different types Secured Loans are Mortgage loan, Nonrecourse loan, Foreclosure and Repossession.
Unsecured loans are monetary loans that are not secured against the borrower’s assets. These may be available from financial institutions under many different formats and packages. The interest rates applicable to these loans are different forms may vary depending on the lender and the borrower. These may or may not be regulated by law.
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. They are classified under:
A demand loan is a loan that the lender may require the borrower to repay at any time. Demand loans are short-term loans that are typically in that they do not have fixed dates for repayment and carry a floating interest rate which varies according to the prime lending rate. Demand loans may be unsecured or secured.
A subsidized loan is a loan on which the interest is reduced by a transparent or hidden subsidy. These loans are mainly focused on educational and agricultural growth within the nation. If a student avails the educational loan, there will be no need to pay the interest during the entire period of the course in the institution.
A concessional loan also called as soft loan and is granted on terms substantially more generous than market loans either through below-market interest rates, by grace periods or a combination of both. Such loans may be made by foreign governments to developing countries or may be offered to employees of lending institutions as an employee benefit. Concessional Loans typically offer longer amortization schedules (in some cases up to 50 years) and lower interest rates than conventional bank loans.
Personal Loan is a type of unsecured loan and helps to meet borrower’s current financial needs. The borrower doesn’t need any security or collateral while availing it. It is provided on the basis of key criteria such as income level, credit and employment history, repayment capacity, etc. Common personal loans include mortgage loans, car loans, home equity lines of credit, credit cards, installment loans and payday loans. The credit score of the borrower is a major component in and underwriting and interest rates of these loans.
A commercial loan is a debt-based funding arrangement between a business and a financial institution, typically used to fund major capital expenditures and or cover operational costs that the company may otherwise be unable to afford. Commercial loans are secured by collateral owned by the business requesting the loan.
This post was last modified on December 30, 2017 5:06 pm