Here we are discussing a few type of loans and its effects.Different types of loans and their features.Bank Loan types- Its advantage and Disadvantage. Loan is a common term and known to everyone. Earlier the land lords/ money lenders used to lend the money in lieu of property etc and it was very unpopular mean of money lending. However it was the easiest way to take loan. With time, banks evolved and came into existence which formalized the way of with proper documentation etc and loan are now granted to eligible people.
Different types of loans and their features.There are various type of loan like personal loan, home loan, secured loan, lending white goods loan, consumption loan etcbut here we are discussing a few broad type of loan and its impacts. These questions are often asked in the examination and so it is very important for banking aspirants to know about this.
Various type of loans given by banks
Banks generally gives following type of loans:
Secured loan (also called collateral based loan)
- In a secured loan, a borrower pledges some asset as collateral like property, car etc.
- A mortgage loan is a type of secured loan used by a customer. In a secured loan, a money is using to purchase a property.
- If in case the borrower fails to pay back the loan amount a lender has legal right to possess the collateral security and recover the money.
Non collateral based loans:
- In the unsecured loan, a loan is not secured against any of property of the borrower.
- This type of loan is available from the financial institutions like banks, NBFCs and other private institutions.
- In unsecured loan interest rate depends on the lender and the borrower and the rate of interest in an unsecured loan is always higher than a secured loan.
- There is more risk associated with the unsecured loan that a customer may not pay back an amount.
- In case of insolvency, unsecured lenders are the second priority to pay the money.
- An unsecured loan may be one of the following:
- Personal loans
- Credit card debt
- Bank overdrafts
- Line of credit etc
- It is given by bank for a short period of time and generally the loan amount is also less
- The interest rate is floating interest rate
- Borrower can pay the loan at any point of time. There is no fixed period to pay the loan
- This is a form of loan where the bank subsidizes the loan interest based on government rules and norms
- These type of loans are education loan
- A concessional loan is also called as a “soft loan”.
- A concessional loan is given either through below market interest rates, by grace periods or a combination of both.
- This type of loans is given by the developed countries to the developing countries.
Advantage of loan:
- You get money when you need it the most
- All the documentation are proper and authorized so there is no issue of cheating like that of money lenders
- Banks, NBFC, various institutions are available for loan
Disadvantage of loans:
- Time taking process. Banks take times to assess your credit rating, credit history and ability to repay loan etc
- Some of the documentation are unnecessary and time consuming
- The loan amount sanctioned is always less than the loan amount demanded. The pre interest is always deducted so it is a major disadvantage of any loan