A loan is a sum of money that an individual borrows from any financial entity such as a bank or from an individual such as a MONEY LENDER whose legitimate business is to lend money commercially. This is with the expectation that the borrower will pay back the loan along with the legal interest provided by law. Loans are typically an exact amount but the interest may vary depending on the terms and condition of the loan. There are a variety of loans that can be availed by individuals today. It is therefore important for an individual to fully understand what and why he needs the loan for.
Open-Ended & Closed –Ended Loans
Open-Ended loans are loans that you can use over and over. A Good example of this is the credit card. We are all familiar with plastic and most of us have one in our wallet. We all know that we can use credit card several times over as long as we don’t exceed its credit limit. Closed –Ended loan on the other hand is quite the opposite. The individual is only given a specific amount to use and this amount will be amortized by the borrower until fully paid.
Secured and Unsecured Loan
Secured Loans are type of loans that requires the borrower to secure the loan with some form of collateral with the same or a higher value as that of the loan amount. In the case of a loan default, the lender has the right to take possession of the collateral and use the same to cover the remaining cost of the loan. Unsecured loans do not require collaterals but they are harder to get because the approval of the loan will rely on the credit score and history of the borrower.
PAYDAY LOANS are usually short term loans and are usually covered by a post dated check issued by the borrower to the payday loan lender. The loan only takes about two weeks to mature hence the reason why it is short term. Because this type of loan carries a relatively high interest, it is therefore best to look for other loan sources prior to applying to this type of loan.