A loan simply refers to a lump sum of money borrowed, which should be paid either over time or all at once. Interest is usually charged on the loan. There are various factors which determine the amount of loan that you can get. Examples include income amount, existing debts, and credit history among many others. There are also many different types of loans which you can borrow. It is important to know all your options and choose the one that meets your needs the best. Below are some of the basic loan types.
Open-ended loans and closed-ended loans
The open-ended loans
The open-ended loans refer to the ones which can be borrowed many times over. Lines of credit and credit cards are two good examples of the open-ended loans. As much as you can borrow many as many times as you want, there is a limit to the maximum amount which you can borrow. That means that your available credit decreases each time you borrow and increase each time you make a repayment.
Closed-ended loans
The closed-ended loans refer to those that can only be borrowed once. You then have to make payments on the loan, either all at once or in installments. You will not have any credit available to use on the closed-ended loans. However, you can get another loan, which will require going through the entire approval process again. Auto loans, mortgages and student loans are examples of the closed-ended loans.
Secured and unsecured loans
Secured loans
Secured loans refer to those which require you to place collateral for the loan. The lender will take possession of the asset if you are unable to repay the loan. The value of the asset has to be confirmed formally before the approval process can begin. The limit of the loan amount that you can borrow will be dictated by the value of your asset. A good example is a title loan.
Unsecured loans
These simply refer to the loans that require no collateral. They might be a bit more difficult to get and in most cases, will have a higher interest rate compared to the secured loans. You income status and credit history are the criteria used to determine if you qualify for the loan as well as the amount that you can get. When you låne penger and default on payments, the lender might have to use debt collectors or file a lawsuit if he wants to recover the loan.
