Having financial issues? Want to opt in for a loan, definitely that’s a good idea, but it’s interesting to bring to your awarenesses that there are types of loan, just to enable you know which one is best suitable for you.
I can easily assume that most people know what a loan is, but do you really know the The types of loans and their features?. Therefore, In this article, you’re definitely going to know about that. But for more clarification I’ll brief us on what a loan means.
What is loan.
Loan is the act of borrowing money to either an individual or organization, especially a sum of money that is expected to be paid back with interest.
According to Wikipedia. “In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that debt until it is repaid as well as to repay the principal amount borrowed”.
But for educational purposes, I’m going to tell you about the types of loans and their features.
Do you really understand how loans work? Or the kind of loan to go for in certain types of scenarios? So, before you check out Online Loan apps you can try out, It is important to clearly state them out before approaching any offline or online loan app or outlet.
Luckily, they are easy to classify, and you’d see later in this post, easy to understand as well. The following are the categories and types of loans that you can get, alongside their features.
Types of Loans And Their Features
This is one of the core categories of loans, and a very familiar one once we get down to the analogy behind it.
Ordinarily, when you apply for a loan, it is with the promise that you will pay back; now, promises can be emotionally driven, and might not be enough for the lender to guarantee him/her receiving his money back.
That’s where Secured Loans come in; it is the type of loan that requires a collateral, which would act as a security and assurance that the borrower would pay back in the time agreed.
The lender would be the one to determine what the collateral would be like; and has to ascertain if it is similar in worth of the loan to be given.
If in an event, the borrower couldn’t pay back the loan, he/she forfeits the collateral and it legally becomes the lender’s property.
One thing about Secured Loans is that it is usually high in amount; the lender would be willing to lend more if he’s assured that his chances of getting it back is secured.
Then, the interest rates are relatively lower; since the lender has a collateral, it is enough incentive for the borrower to try to pay back as soon as possible. The Interest rate wouldn’t have to be high.
Most of the time, the repayment policy is usually over a longer period of time; again, this is due to the fact that the collateral is good enough a security for the lender.
2. Unsecured Loans.
This is literally the opposite of Secured Loans; the borrower is not obliged to drop any collateral before having access to the loans.
This is easier for the borrower, as it means he can get quick loans whenever he needs them; but not so much for the lender. Which is why there are concessions and compromises in its features in a bid to balance it all out.
For one thing, the amount of loan available to the borrower is lower; this is expectedly so, as the lender isn’t getting much in the way of collateral, and his chances of getting back his money isn’t secured.
This also means that the interest rates is higher; an incentive is still needed for the borrower to pay up as soon as possible, a higher interest would do the job that the collateral would have originally done.
Repayment policies are shorter too, which isn’t surprising; these are just ways the lender is trying to cushion the fact that his loan is unsecured.
Generally, the borrower trades convenience for security; some of the online loan apps in Nigeria are considered online quick loans by many; because they basically give out loans “in a twinkle of an eye”.
This is another category of loans, also known as Fixed Rate Loans; their rates are unwavering, and doesn’t change due to any external factor. Offline loan apps are more likely to give steady rate loans; as well as Secured Loans.
Also, if it is a large amount of money you want as loan, you would want to go for the one that has a fixed interest rate.
Unsteady Rate Loans
As the name implies, the interest rates go up or down depending on a lot of factors; you need to calculate the rate at a point to determine what you would be paying as interest.
Generally, if you are going quick loans in Nigeria, you would encounter unsteady rate loans frequently.
4. Demand Loans.
This is an interesting category of loans; the lender would only make the loan available to the borrower by the forces of demand and supply.
This means the repayment policy is highly variable; the lender could literally ask for his money back at any time! He has the right to also choose whatever interest rate he pleases, and change it whenever he likes.
Some offline loan sources do offer demand loans, surprisingly, people still go after it.
5. Single Payment Loans.
The Single Payment Loans is void of a repayment policy spread over a period of time; needless to say, you get to pay the loan back, and the interest once at a specified time.
Quick loans apps and websites would operate on the Single Payment Loan system If they find it convenient for the amount of loan they are giving out.
6. Payday Loans.
This is a category of Loans that’s very popular in Nigeria; online loan apps in Nigeria, as well as banks love giving payday loans.
It is also regarded as Salary Advance Loans and salary earners (whom are a lot in the country) can have access to payday loans.
The characteristics of payday loans are high interest rates, and low loan amounts; this might seem unusual, but that’s how to make a secured loan a lot more secure, from the lender’s standpoint.
You might need a loan in the nearest future, but what kind would you get for your need? What would be getting, and how would you be paying back? These are things you need to know before taking a loan; ignorance can be easily capitalized in when it comes to loan taking and repayment.
Luckily, the features of some of the most common types of loans in the country have been explained in this post, so you can easily have an idea of what you’re getting into, whether you are trying out Online loan apps, online loan websites or even banks.