Loans as Types of Debt



Loan is the amount of money, which is borrowed by someone with the promise of repaying on a certain date. The person who lends money is called the lender. It is a kind of agreement in which a specific interest rate is also charged on the principal amount of loan, and which must be repaid. The borrower is bound to repay the loan according to agreement. Loans can be of business related or in daily life. The borrower has to pay the loan on demand of lender or in installments within a specific period.


Debt is also an amount of money borrowed by someone with a promise of repaying on a certain specified date. Debt is a more business-related term, and interest is also involved in it. You can also term loans as type of debt. All business-related loans come under this terminology.

Types of Loans:

There are many different types of loans, with different rates of interest. In some loans, the lender charge you a fixed rate of interest it may be a fixed by law.

Secured Loan:

These loans are issued against some worthy assets of the debtor like land, house or some other property as a security. The property is a security of a lender that if the borrower fails to repay the loan amount lender can repossess the property. Secured loans are usually given for capital working in which borrower wants to convert any of his assets in working capital. If the borrower fails to repay the loan amount, lender will repossess the property and sell it in order to pay the loan. If the property does not worth enough money to pay off the loan, then borrower will pay the remaining part of loan. This is less risky on lender’s point of view.

Conventional Loans:

It is a type of secured loan and is a mortgage loan. These loans are not insured by federal housing administration or other government agencies.

Auto Loans:

This is also a type of secured loan in which a car is put for collateral. If the borrower fails to repay the lender will repossess the car and have the right to sell it. The loan can only be use for the purchase of the car you cannot use it for any other purpose.

Unsecured Loans:

Unsecured loans are opposite of the secured loans. In this type of loan, there is no need to put any of the assets for security. These loans are only given to people with good credit record. Acquiring of this loan is quite difficult, and it usually charges a high rate of interest. If the borrower fails to repay the borrowed amount, the lender goes for a lawsuit for the recovery of loan. These types of loans are usually of short term.

Credit Line:

It is a type of bank loan that is issued to the borrower without any collateral. It is usually approved for smaller amounts as there a higher risk involved in it without a guarantee or security of loan. The amount of loan is repaid by the borrower with a rate of interest. In this type of loan lender only checking that the borrower is having monthly income.

Payday Loans:

Payday loans are also termed as unsecured loans because there is no guarantee of loan for collateral. These are of short-term and usually paying off after two weeks. It is also approved for the very small amount that is from $100 to $1500. Payday loans are actually a kind of short-term loans. These loans are usually provided in case of emergency. These loans are applicable without the tension of credit condition that is bad creditors and good creditors.

Short-term Loans:

Short-term loans are proved good as compare to long-term loans. These loans are best for paying off your different types of bills like grocery bills, electricity bills, education fees, phone bill, etc. it has a very good advantage over long term bills as they prevent you from the time-consuming and lengthy process of form filling and waiting.

Bad credit Loans:

Bad credit means a past poor record of a person or the ability that how many times he failed in the fulfillment of credit agreements. In many types of loans credit record is considering a most important part, and it is usually hard for a person with bad credit to get access to loans. There are many people who are having a very bad credit and are in need of money and are searching for loans. There are many financial institutes, which offer different types of bad credit loans for those having poor credit conditions. For example, personal loans, VA loans, instant cash loans, cash advanced loans and so on. For qualifying for bad credit loans you must have of 18 years or above, having a job that is three months old, with a steady monthly income, must be a citizen of USA and proofs regarding residence and bank account. They also guide you about the repayment as well as about the improvement of your credit score.

Student loans:

Student loans are usually given to compete with the cost of higher education. These loans are usually of three types.

Federally guaranteed loans:

These loans are guaranteed by government and are given by banks and some other financial intermediaries. There is a fixed rate of interest on these kinds of loans. For the protection of lenders from losses, government pay subsidy to them.

Federal direct loans:

These loans are not only guaranteed but also paid by government. The rate of interest in it is also fixed.

Private loans:

These loans are not guaranteed by government and are given by private banks and companies. The rate of interest in these loans is variable and usually high. They allow you to borrow up to 100% of your education expenses. There is a risk involved in it that with passage of time the rate of interest goes high and made them hard.

If students become fails in the repayment of the student loan it will create difficulties for you. In such situation, you should consult with your lender it may be possible that they increase your time.


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