Types Of Loans You Should Know About

Loans are viable ways to finance your business or debt. They come in different forms with different requisites attached to each form.

Knowing what loan type to go for and planning accordingly so you don’t slip up when it’s time to repay will become a very essential habit should you look to take loans from financial institutions of individuals.

Some of the most common loan types are:

Secured loan

This is a type of loan that gives the lender a right to take the collateral if the borrower fails to repay the loan taken. The idea is to have some sort of security against the money borrowed.

If lenders default in payment, the financial institution can sell the asset to clear the debt.

However, secured loans are riskier than unsecured loans because you could lose your collateral if you cannot clear the debt. You should, therefore, think very carefully – and consider other options – before taking out a secured loan.

Unsecured loan

Unsecured loans are also known as Personal Loans. An unsecured loan requires no collateral. Instead, there are higher interest rates due to the high risk taken by the lender.

So, unsecured loan deals have no collaterals attached to them, but, it could become a court case between borrower and lender if money isn’t paid back.

Single payment loans

The single payment loan works by allowing a sum of money to be borrowed on the terms that full payment will be made at a fixed time.

Monthly payment loan

This types of loan requires the borrower to repay the loan principal and interest with a fixed amount each month. The repayment dates are scheduled at the start of the loan.

Mortgage

A mortgage, by definition, is a legal agreement by which a bank, building society, etc. lends money at interest in exchange for taking title of the debtor’s property, with the condition that the conveyance of title becomes void upon the payment of the debt.

The lender is legally allowed to repossess any mortgaged property to cover their expenses. Read more about Mortgages here.

There are more forms of loans, but these are the most commonly taken. Read about other forms of loans offered in Nigeria here.

Read Also: Top Things To Know Before Applying For Loans.

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