As we all know, loans are everywhere around us, and this method of financial assistance is used by people all over the world. In some cases, loans are simply inevitable and they present a necessity, sometimes even a life-saving one. People borrow money for different purposes and from different sources. Most common resources of that extra cash are family, friends, colleagues, banks and credit unions, or some other financial institution. Any money which is borrowed with the promise and obligation that it will be returned within a specified amount of time is called a loan. Most loans have to be returned with interests, especially if the money is borrowed from a bank or a credit union.
In cases where people need a large amount of money, long term loans are usually the best solution. This method is affordable, efficient and relatively easy to maintain, but it has some risks and can even be potentially dangerous, if not treated right. Long term loans carry a slight risk because banks usually require a guarantee when they give you the money. This guarantee is usually your property or some asset that has a similar value to the amount you requested.
This guarantee is known as a collateral, and mortgage loans, which are one of the basic and most common types of long term loans. Usually take the house which the client is trying to buy as the collateral, which means that they can seize the property and take over the ownership if the debtor fails to honor the agreement and defaults the payments.
Types of long term loans
Long term loans, such as mortgages, car leasing, student loans and others, are taken for a period of more than three years, and they can have a maturity date of 25 to 30 years, or even more in certain cases. These loans are called secured loans, since banks are using the collateral as a guarantee that they will have a return on the money which they are giving to the client. Usually they make the profit by the difference created by interests, and long term loans generally have lower interest rates than other types of loans.
Anther advantage of long term loans is concerned with the size of monthly payments which the clients have to pay to return the loan, since these loans have smaller monthly installments because of a very simple reason – longer period means that money is stretched over more months, and this divides the money into smaller portions. This attracts a lot of customers to this type of loans, since they can leave some money aside each month and not give their whole paycheck to the bank immediately.
As mentioned above, long terms loans are used in cases where clients need to boost their buying power, i.e. in the cases where they are buying some kind of property or investing in a certain project. The purpose of the loan depends on the client, but large amounts which they receive this way enable them to act in the right moment and spend the money in the way they feel is the best.