Tuesday, December 12

A Guide to Different Types of Loans

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If you are considering taking a loan, you may encounter a bunch of different terms you are not familiar with when you look for information about loans online. The most common question regarding loans that people who have not taken loans before ask, is what the different types of loans available mean.

If you also wondered about this, do not worry, here is a short overview of the different types of loans commonly available for most people:

1.Secured loans

Secured loans are given to people who can provide some kind of asset as collateral for the loan. Mortgages are the most common types of secured loans, since you give your house or apartment as collateral for the mortgage.

Loans taken to purchase cars or other vehicles as well as stock hedge loans are also usually secured loans.

Having collateral gives the lender a security until the loan has been fully paid off, which means that the interest rates for secured loans are generally lower than for other types of loans. It also does mean, however, that if payments are not made on the loan as agreed between the lender and the borrower, the lender ultimately has the right to repossess the asset and sell it if necessary, in order to recover the sums that have not been paid by the borrower.

2.Unsecured loans

Unsecured loans are not in any way secured by the borrower’s assets. This means that the interest rates are generally higher, and that the amounts you can borrow are smaller. Common types of unsecured loans are: credit card debts and personal loans.

Some unsecured loans are regulated by law, while others are not.

3.Demand loans

Demand loans are loans that are given very short term. This means that the lender can ask for them to be repayed at any point. Demand loans can be either unsecured or secured, even though unsecured demand loans are more common.

Demand loans normally have a floating interest rate, that changes according to the current prime rate.


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