Loans can be taken from many different sources. The official term “loan” is usually referring to the action of borrowing money from a bank or a credit union with the intention (and obligation) of paying it back in a specified period and with interests included. Banks are including interests as a fee for their services. But they can also sometimes take other resources and properties as a guarantee that the funds will be returned in the agreed fashion.
People turn to banks because they offer efficient and powerful source of funds when they are urgently needed, and banks are, in return, happy to satisfy any customer, as long as they prove that they will repay the money.
Money is a very important element of our daily interactions and it can even be said that financial stability serves as the foundation for our social lives and overall health. This means that we simply have to produce enough money to be happy and satisfied. Most people work very hard to accomplish this. However, unexpected events or more demanding occurrences simply require more funds than we currently need. This is the moment when we turn to banks and ask for a loan. Millions of people all over the world are doing this. Loans and credits have become inevitable parts of our lives.
Different types of loans
There are many different types of loans which are available in banks all across the globe. Experts usually divide them into two major groups: short term and long term loans. This categorization is done on the basis of the duration of a loan, which means that if a loan has a maturity date of under 1 year it falls in the group of short term loans, and if it has a longer period in which it needs to be re-payed than it is classified as a long term loan. Short term loans are sometimes extended to three years, but everything over that limit cannot be considered short term.
Basic attributes of short term goals, besides their payment period, are higher interest rates, smaller amounts that can be borrowed, and higher monthly installments. All of those features come as a consequence of that shorter period, and monthly payments, for instance, are higher simply because there are less months to distribute the total amount that needs to be returned to the bank.
On the other hand, long term loans are given, as their name clearly suggests, for longer periods of repayment. That period can last as much as 25 or 30 years, or it can be even longer in some cases. Advantages of long term loans are multiple. People usually decide to use them because they offer lower monthly payments and lower interest rates. Also because they give a strong boost to clients buying power. That is the reason why clients generally use this type of loans for more ambitious projects and purchases, such as buying a car, or a new home or for some business investment. Also, since these loans are larger, banks usually take a guarantee, and this is known as a collateral.