What Are the Different Types of Bank Loans
Most of us do not know much about the different types of bank loans. However, whether we consider money on a domestic scale or large money transactions, the economy operates on loans and credit because liquid assets are not always available to perform an operation. So, from buying a refrigerator to selling stocks from one company to another, loans end up being a necessary part of our lives. Therefore, it of foremost importance to know what are the different types of bank loans. So today, on OneHowTo.com, we will help you find your way into the complicated world of bank loans.
Consumer credit. These types of bank loans help to finance purchases that we can't pay for up front. So, rather than using credit, loans can be a better way to finance you purchase. Banking institutions, commercial finance companies, or selling establishments such as supermarkets, offer purchases that can be repaid over several months, often without any interest.
Credit facility. A banking institution makes a maximum amount of money available to us, and we can either use it or not. Bank interest begins to accrue from the time that the amount is made available, and it is usually somewhat higher than a common loan. This type of loan can be necessary in order to purchase something that has a high price.
Credit card. The interest rate of this type of loan is very high compared to other loans, but in return it offers you a great deal of flexibility, plus the convenience of being able to make payments with your card automatically, without having to apply for a loan from the bank each time. The credit limit, usually between about 2,500 and 4,500 dollars a month, is often more than enough to meet specific needs that may arise at any given moment. Moreover, when it comes to repaying the debt, many possibilities are offered such as full repayment or payment in equal instalments based on the percentage of the remaining debt, among others.
Commercial loans. These types of loans are deferred payments that companies offer to customers as part of a commercial transaction for the purchase or sale of goods or services. Promissory notes, instalment agreements, instalment payments or collection terms etc. are included in this loans group.
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- There should be no confusion between credit and loan terms that are often used interchangeably.
- With a credit, an amount is made available to the customer, subject to a limit in advance.
- With a loan, a total amount is just paid once, and is returned later with interest payable.