Four types of loan

An online report by aviatekbank.com explains different types of bank loans as follows::

• Personal loan:

This is a loan that is offered an individual, rather than to a group or business. The personal bank loan is further categorised as secured and unsecured loan.

• Unsecured personal loan:

This allows a borrower to get a cheque or cash and pay it back in fixed installments over a certain fixed period of time.

In unsecured personal loan, no specific loan purpose is required. However, it is far less common for a bank to provide an individual an unsecured bank loan.

The unsecured personal loan is like a credit card. Nothing is placed as a security for the loan. The borrower simply gives his word to the bank that he will pay the loan back in the terms agreed upon. In case the loan is not repaid, the bank gets nothing.

The rate of interest on unsecured loans is usually quite a bit higher than secured loans; so the bank ensures it gets its money early in case the borrower fails to pay back the loan.

• Secured personal loan:

The bank issues cash or a cheque to the loan seeker. The loan seeker has to provide the bank with interest in collateral such as a savings account or a property in case the loan does not get repaid. This kind of loan is the most common personal bank loan type, which is offered by banks.

This loan type has some sort of possession put up as security for the loan. In other words, if you are not able to pay back your loan according to the set agreement, the bank has the right to repossess whatever you put up for the loan. Borrowing against the equity in your home is an example of a secured loan. Your home becomes the security for the loan amount, and if you do not pay back your loan on time, the bank can repossess your home.

• Auto loan: In general, almost all banks provide auto loans for purchasing new vehicles and for the repair of older ones.

The consumer has to pay back on monthly instalments, otherwise the vehicle will be repossessed by the bank.