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Welcome to Your Loans Guide
All about Loans In a world of high inflation, two income families and exorbitant expenses such as college tuition, it's no wonder more people are turning the world of loans. Loans can help finance a variety of needs and purchases or be used simply to just make ends meet at times. Regardless of the nature of your interest, no pun intended of course, this helpful article will cover the basic aspects of the myriad of loans that are common today. Basic Types of Loans Consumer loans can be used to fund a variety of purchases including real estate, transportation, supplies, equipment and numerous other items. These loans fall into a few basic categories. Short-Term Loans: These loans are usually for a single purpose and have a maturity of a year or less. Short-term loans are ideal for one-time purchases or to cover a shortage of cash thereby increasing your good credit by remitting payments early or on time. Intermediate-Term Loans: Maturity for loans of a moderate amount of time, generally more than one year but less than five years, are referred to as intermediate-term loans. These types of loans are used commonly for the purchase of items such as vehicles, boats, remodeling or home repair. Long-Term Loans: A mortgage is a perfect example of a long-term loan and generally runs between ten and forty years. Multiple documents must be signed including an indenture which specifies the legal terms of the loan such as the rights of the borrowers and the lenders, the principle, the maturity date as well as interest rates, among others. Small Business Loans: When applying for a small business loan, newly formed or very small companies may find it harder to obtain the necessary funds needed unless they've been in operation for one to two years, depending on the lender. The main disadvantage of a small business loan is that many young companies experience a shortage of cash flow particularly during the first year following start-up, which may make it difficult to meet monthly payments. The last thing a new business wants is to start off with bad credit which would hinder future financial dealings and investments. Common Characteristics of Loans Interest: Interest is the price you pay for borrowing money. Interest rates vary by institution and are calculated so that they are sufficient enough to cover operational costs, acceptable rates of return as well as administrative costs incurred by the lending institution. Interest rates can be fixed, meaning the rate doesn't change for the duration of the loan, or interest can be adjusted to reflect the fluctuating market. Collateral: Assets pledged by you to the lender in the event that you are unable to repay the loan are known as collateral. In many instances, the item you are purchasing with the loan may serve as collateral itself. In other cases, the borrower must put up other assets such as cash, vehicles and real estate or land for a mortgage loan. Maturity: The term maturity refers to the length of time of your particular loan and should be clearly outlined in the loan contract. In classifying loans by length, there are three major categories such as short-term, intermediate and long-term debt as outlined above. Terms of Repayment: Loan payments are usually required at set intervals such as monthly or semi-annually with some contracts also requiring additional payments at the end of the loan's maturity. A payment can generally be broken into two portions; the first being the outstanding principle due and the second being the interest. The lower the principle, the lower the interest fees will be.
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