Loans come in all shapes and sizes. There are a few larger ones that are commonly discussed that you may have a question or two about. The following is a description of many of the loans you may have heard of or come into contact with yourself.
You may have heard homeowners talking about paying off their mortgage, or having to take out a second mortgage to be able to keep the house and pay all of their bills.
A mortgage is a loan taken out to finance the purchase of a home. These loans come in the amounts of several thousand dollars and are just to be taken out to pay for real estate. They accumulate interest over the years just like any other loan. Mortgages are typically paid off in fifteen to thirty years. The major difference with these loans is that part of the mortgage includes signing the right of your home to your debtor should you default on your payments.
If you prove that you are unable to pay your mortgage, your lender has the right to take back the house for themselves. This is called a foreclosure. These houses are now the property of the banks. They work to sell those homes as quickly as possible in order to make back the money they invested so many years ago. They are a pain for real estate agents to sell, but buyers can usually get a good deal on them. So with such a difficult circumstance, how would a second mortgage help you?
A second mortgage is just that, another mortgage taken out on your property. This money is taken out for another large purchase however. That purchase can include a car, college tuition, etc. It can also be used to help pay off other outstanding debts. It might even be used to help pay the terms of the first mortgage. Interest rates for this mortgage are usually higher than for the first and you pay more in the long run. Depending on your circumstances, it could be worth the effort.
Payday loans are the smaller versions of these big loans. They are short-term (quickly paid off) loans taken out in smaller amounts (typically smaller than your bi-monthly salary). You write a check to your payday loan service for the amount you need, plus a fee, and they give you cash right away.
Once you have the cash, you are free to use it to pay off immediately pressing bills. Once your paycheck comes through, your payday loan professionals will collect their payment and the transaction is completed.
These are great for getting the money you need quickly. Discretion has to be used on how you use your next paycheck, but when you’re looking to keep a house, a car, or in good standing with someone, a payday loan can be very helpful.
These are the 2 common personal loans that financial institutions hand out regularly. There is still one that you might have heard a lot about, but wonder how it differs from the rest of the lot: business loans.
Business loans exist in a different realm than these more personal loan options. Businesses work through a significantly larger amount of money than most individuals. Hence, they qualify for much larger loans a lot easier than individuals.
A small business loan can run anywhere between a few thousand dollars to fifty-thousand. A large one can push a million dollars, depending on the profitability of the business.
They qualify for their loans in much the same way everyone else does. The lender looks at a lot of the same aspects as they do for individuals. Their number one concern is to determine the likelihood of you paying back your loan. Giving you that money is still a gamble of an investment.
That gamble can be reduced with considerations of past sales numbers, available budgets coming in, preorders waiting to fully cash in on their end of the deal, etc.
Companies must present their assets, sales, and purpose for the loan in no uncertain terms in order to convince the bank or organization to take a chance on them. Your confidence and work behind the scenes will all be paid off with a check for an amount close to what you were looking for when you do it right. The key is to show trends and predict realistic futures to show that you will have the means to pay off this loan.
The companies take that information and review how risky the venture is, determine if you are eligible, and set an interest rate that will ensure they will have their money returned in full.
Businesses may exist on a different plane than individuals, allowing them larger loans, but many of the same principles apply to them as well.