Loan Financing

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If you have never received a loan to purchase something, you are certainly in the minority! Loans can be a great thing, but they can also get you into trouble. One of the keys to being financially successful understands when loans are a good solution for your situation. Loans are never a good idea if you can't afford to pay them back in the required time frame. Let's explore what a loan is and find out some of the common ways to borrow money.

A loan is when you receive money from a friend, bank or financial institution in exchange for future repayment of the principal, plus interest. The principal is the amount you borrowed, and the interest is the amount charged for receiving the loan. Since lenders are taking a risk that you may not repay the loan, they have to offset that risk by charging a fee - known as interest. Loans typically are secured or unsecured. A secured loan involves pledging an asset (such as a car, house or assets) as collateral for the loan. If the borrower defaults, or doesn't pay back the loan, the lender takes possession of the asset. An unsecured loan option is preferred, but not as common. If the borrower doesn't pay back the unsecured loan, the lender doesn't have the right to take anything in return.

Types of Loans: 

1. Home Loan: A sum of money borrowed from a financial institution or bank to purchase a house. Home loans consist of an adjustable or fixed interest rate and payment terms.

2. Term Loan : Term loans are short term loans are offered to businesses for capital expenditure and expansion among others. Generally having a tenor up to 5 years, these loans are tailor-made to suit the various financial needs of businesses. Minimal documentation, quick disbursal of funds, and flexibility in repayment are some of the major benefits of these loans.

3. Personal Loan: You can get these loans at almost any bank. The good news is that you can usually spend the money however you like. You might go on vacation, buy anything you want or get a new television. Personal loans are often unsecured and fairly easy to get if you have average credit history.

4. Business Loan: Businesses require an adequate amount of capital to fund startup expenses or pay for expansions. As such, companies take out business loans to gain the financial assistance they need. A business loan is debt that the company is obligated to repay according to the loan’s terms and conditions.

5. Cash Credit/ Overdraft Facility:- Overdraft limit is given by Banks checking your previous financials. And with evidencing the growth of the business. It is basically provided for the business working Capital purpose.

6. Loan against Property: These are secured Loan which is provided by bank taking some kind of property against such loan. This loan does not have any condition for utilization of same. It can be taken n personal name as well as in the name of business.