Posted on: November 5, 2020 Posted by: Alina Barber Comments: 0

In simple terms, a loan is a financial lending of funds to an individual, organization, or several people, companies etc. The borrower is typically liable only to repay principal and interest on that borrowed amount and may be in turn liable for paying back the original debt plus interest. There are different types of loans available such as merchant cash advance, personal loan, home mortgage loan, debt consolidation loan, etc. A payday loan is basically an unsecured loan which must be repaid within a few hours or it becomes a legal debt. Therefore, the borrower must comply with all the legal requirements to get approved for a loan.

Before getting a loan, the borrower must satisfy certain requirements. For example, if the loan amount is a big one, then the borrower should have some kind of a steady income or bank account. Credit ratings can also be checked from a third party agency like Trans Union. This helps the lender to judge the borrower’s financial history and decide whether to approve the loan or not. The borrower should be ready with all documents relating to his/her current employment, details about current residential location, creditworthiness, salary information etc.

Another type of loan is a signature loan where the borrower agrees to another party in exchange for repayment principal amount plus interest. In this case, the signature is a formality because both the parties are legally bound to agree on the terms. The borrower signs the loan documents when he/she submits them for the approval. An unsecured loan can also be converted into a secured loan in case the borrower has pledge documents like securities or bonds.

Fixed-rate revolving loans are usually offered by financial institutions such as banks. In a fixed-rate revolving loan, the interest rate remains same throughout the term of the loan. These are long-term loans. The repayment term can range from one year to thirty years. In a fifteen-year loan, the term can be extended up to twenty years.

A balloon loan facilitates quick cash advance. If the balance amount of the loan is paid off early, then the borrower can borrow again from the same financial institution without having to pay a penalty. With a balloon loan, the borrower can borrow up to a particular limit, which he/she can repay over a specific period of time. In case of late repayment, penalties would be charged. However, if the principal is not repaid, then a balloon loan would revert back to its starting point and the principal balance would owe interest on this balance.

Interest only revolving loans allow the borrower to borrow only what is needed. It means that they would owe interest for the first six to twelve months, but the amount spent by the borrower during this time will be tax deductible. Borrowers may borrow only as much as they can afford to repay within the specified repayment period. As soon as their debt becomes unmanageable, these borrowers can opt for another type of loan.

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