In this article, Robin will explain all the types of loans you can find in the market.
We can classify bank loans according to their duration and purpose:
Types of loans according to duration
According to how long it takes to pay the entire loan, they can be classified as follows:
- Short term loans:
They are those that will be paid in full before one year (12 months).
- Medium term loans:
The payment period is between one and three years (12 to 36 months).
- Long term loans:
The payment term is longer than three years. In some specific cases it can be several decades.
You can read more about short and long term loans to find out in which situation each one is convenient.
Types of loans according to destination
They are usually for small amounts and meet specific needs, such as a travel loan, a wedding loan or a quick emergency loan.
These loans are usually destined for intangible or perishable goods, but there are no requirements in this regard.
These loans are those that are intended for the consumption (purchase) of tangible or durable goods, such as the purchase of a new or used vehicle, the purchase of an appliance or any good of not very high amount.
As the name suggests are loans that are intended to cover study expenses.
Interest rates are not usually very expensive and are sometimes subsidized by the government.
Normally the applicant includes in the student loan the cost of the study center, plus the cost of living and transportation so, depending on the university, it can be a large amount and to be paid in a long term.
Known as mortgages, are those credits in which the applicant seeks the money to buy a property; It can be a land, a house or an apartment.
These are usually the largest loans in the market. They also have the most demanding requirements and the rate depends on the credit history of each applicant.
Loans for business activities
These credits are the ones that companies request for their expenses and investments.
Without these loans many entrepreneurs could not start their businesses and create jobs.
On the other hand, large companies need these loans to scale their businesses, either to increase their production, improve quality or to open in new markets.
Other types of loans
There are other types of loans according to various criteria, among others:
Loans to retirees
It is a type of loan specially designed for retirees or pensioners.
They are usually short or medium term and usually the loan payment is done automatically discounting the retirement payment.
In this type of loan, the recipient receives his property as collateral. This means that the lender will have the power of the property until the borrower returns the money in full.
Crowdfunding, crowdlending and p2p loans
In recent years, a financing model for new companies has emerged, known as crowdfunding, in which many people and / or potential clients contribute money to the creation of a new product that will solve a very specific problem.
A similar concept exists for people who want a loan and is known as crowdlending or p2p loans. He who wishes to receive the loan publishes what he needs on the platform and many people contribute the money, charging an interest rate.
Loans between individuals
In this type of loans, private lenders are involved, in which there is no regulated financial entity. While this may be a good idea in case of an emergency, it also has its risks.