The word loan refers to a sort of financial credit contract where a certain amount of money is lent to an authorized third party in return for future repayment of its value or principal amount. In most cases, the lending party also includes finance charges and interest on the principal amount that the borrower has to repay as well as the interest rate. Withdrawal of a loan is equally easy. Most loan companies provide services to assist customers in making decisions regarding their loans. A few companies also make provisions for recovering monies advanced for late payments.
A number of sources are available for securing loans. For example, banks offer various types of commercial loans that provide a borrower with a choice of borrowings and repayment schedules. Typically, banks give loans on the basis of real estate property that is put up for sale. Commercial real estate loans are for business ventures including offices, warehouses, shops, apartments buildings, and other structures used as business premises. However, they are repaid over a specified period of time, generally one to two decades.
Home owners can take out home equity loans that are secured against their homes. In case of default, lenders will repossess the collateral used to secure the loan amount. Lenders charge a higher rate of interest on such loans. A homeowner can avail of refinancing loans for managing the increased monthly repayments.
Most people prefer to go in for unsecured loans as these do not require the borrower to pledge any collateral for getting the loan. Unsecured loans are also popular with people with bad credit history, since they are exempted from being approved until and unless the loan applicant possesses a secured asset. Unsecured loan amounts are thus lower than secured ones. But with unsecured loan, the lenders bear only the interest costs involved in the process.
Personal bank loans are sought by people who do not want to risk their own personal assets to get the loan amount. These are unsecured loans with flexible repayment terms. For an unsecured bank loan, you need to place your valuable assets as collateral and so, the interest rate charged is comparatively low.
Secured loan is preferred by those who can not qualify for unsecured loans or banks. Secured loans are sought by lenders on the basis of assets such as a home, cars, jewelry, businesses etc. For securing a loan, borrowers need to pledge collateral with the lender. For instance, if you have purchased a house with the objective to rent it out after some years, you can pledge your house as collateral with the lender. If you do not pay back the money on time, the lender may repossess your property. On the other hand, if you do not return the money on time for using the car, the lender can make use of the car as security and sell it off to clear his liability.