The use of loans is a common occurrence in the modern world. It is very convenient – to buy the necessary thing at once, and not to save on it, to have the opportunity to arrange a good holiday on any occasion. In addition, credit funds can be a real rescue in a critical situation. For example, in the case of a sudden illness, financial problems due to job loss, and so on. Naturally, loans need to be repaid, but sometimes this can be accompanied by some difficulties.
You need to understand what the loan is
The classification of loans is actually quite complicated – they are classified according to the volumes, terms, methods of transferring funds, and the type of interest. But most often they are divided into the following groups:
- Usurious – a private loan at very high interest rates and with the obligatory provision of collateral;
- Commercial – in fact, the sale of goods under the payment of parts, the so-called installments;
- Banking – the issue of funds directly by the bank when the borrower provides the relevant guarantees in the form of information about income or guarantors. Often issued under clearly defined goals (study, repair, purchase of a particular product), for which it is called “target” (https://budgeting.thenest.com/types-loans-offered-banks-26219.html);
- Mortgage – large loan secured by real estate. Most often issued for the purchase of housing, where the buying product itself serves as a pledge;
- Consumer – to meet the needs of the population. In essence, the same bank loan, but only for individuals;
- Lombard loan – a loan secured. In this case, the pledge must be easily realizable, that is, it is easy to sell.
In addition to these, there are a number of types of loans, but they are not related to lending to the population, and are calculated only for enterprises and even entire countries. All these products of the financial market have their own characteristics. But, anyway, any loan must be repaid.
What are the loan repayment methods?
All methods of loan repayment are divided into four types, depending on the procedure for paying interest and the loan body:
- Repayment of the loan in equal installments and interest on the balance of the debt. This method is the least burdensome for the borrower;
- Annuity – payment of the loan in equal sums throughout the entire loan period. In the first payments, interest will be paid in the first place, and only in the second half of the loan period will the principal part of the loan itself be paid;
- The return of the entire amount of the debt at the end of the period, while the interest is paid monthly. The most expensive loan, while this system is used in pawnshops;
- Return both debt and interest at the end of the loan. This method is practically not used due to the extremely high risk for the lender.
In case of any of these loans, the longer you pay, the more expensive it will be.