It is not uncommon today for individuals and businesses to file for a financial loan. Individual would apply for one due to the lack of funds for purchasing necessities or for other purposes that would in one way or another make their lives more comfortable and secure. Businesses on the other hand may need additional capital or additional financial resources to cushion increasing inventory and operational expense due to increasing number of customers. These are perhaps the basic reason why these two sectors of society would file for a bank loan or any other type of loans.
Bank or business loans come in a variety of loan packages and choosing the type of loan that you may require can be a bit of a problem. This is especially true if it will be the first time for you or your business to file for one. For private individuals, a loan can either be used to purchase homes, properties, cars and in most cases to pay for a college education. For businesses, it can provide additional funding to the day to day expenses of the company. Generally, type of loans may be categorized to be fixed or variable rate loan, installment, unsecure or secured loans, and convertible loans. The common factor for all these type of loans is its repayment terms and understanding the repayment terms and condition will allow you to select the right kind of loan for you.
For private individuals, fixed rate loan is the most common type that is availed of because it keeps the same interest rate until the maturity of the loan. However the interest rate for this kind of loan may be higher than the variable rate loan. This type is normally applied to long term loans such a mortgage loan for homes, properties and even high priced vehicles simply because the monthly amortization for the loan will not fluctuate except in rare and unavoidable circumstances which is normally stipulated in the loan contract.
Variable rate loans are those whose interest rates fluctuate. The fluctuation of the interest will depend highly on the market rate or what is referred to in banking parlance as “Prime rate”. In cases such as this, amortization for this type of loan may vary each payment due date. However the interest rate for this type of loan is much lower than the fixed rate loan.
Installment loans are also one of the most common availed by most individuals. The loan is paid in equal amounts over specified period of time and repayment period is spread from six months to as much as thirty years. A loan company may classify this type of loan to be both short term and long term loan.
Finally, you have the convertible type where the loan can be altered or amended from one type of loan to another. One good example of this is a mortgage loan where the borrower can request a change of his loan from variable rate to a fixed rate type of a loan. However, most loan contract specifies that a borrower can only do this after a specific period of time have elapsed. Also this type of loan can also be categorized under flexible loans.