Our society is constructed in the way which treats money as the most important thing. And our financial condition is often more important than our health condition. At least for those people who are not having problems with their health at the moment. Almost everyone is blindly running to get more and more money, working continuously to be able to spend on various things, even if they don’t really need half of that stuff.
Consumer society and materialistic ways of thinking have led mankind to a situation where we have to work as much as we can to afford the basic elementary needs. However, occasionally we need to invest more money into some larger expense, such as a house or a new car, and these expenses often demand more money than we have at our disposal at that particular moment.
Types of long term loans
When, and if this happens, most people decide to take a loan and to ask a bank or some other kind of financial institution to provide them with enough cash money to be able to pay the expense at hand and to pay the money back to the bank through periodical installments later. If the amount of money is relatively large, people need a long time to pay the money bank, and this extends the maturity date of the loan, and in the same time it lowers the monthly installments, since the loan is stretched over a bigger time frame. If the duration of the loan is longer than 3 years, we speak of a long term loan. This number may slightly vary from bank to bank.
The usual period for long term loans is 5 to 25 years, or even 30. If the customers are buying a residential property, and this type of long term loans is generally known as mortgages. Mortgage is a loan used for buying a house or an apartment. In that manner the bank gives the money but it takes the house as a guarantee that the client will pay his debt in time.
The term used for this guarantee is called a collateral. If the clients defaults the payments, the property will be seized or repossessed. With this type of guarantee banks are sure that the money will be payed. It is why this type of loans is known as secured loans.
Other types of long term loans are similar. One of the most common types is a credit used for buying a car, which is called leasing. This method is widely used by people and companies who are in need of a new vehicle. Other types of long term loans include student loans and home improvement loans. They are based on the same principle, with small variations and differences.
The basic idea behind all of them is: people borrow the money from a bank or a credit union, and later they pay it back over a specified amount of time, and with interests as well.
Financial stability is something we all want to have, and our monthly income is often not enough to give us a life which we would want to. Unless you are born into a royal family or your parents are millionaires, chances are that you live your life from one paycheck to the other, while being able to save only small amounts.
However, life sometimes throws a curve ball at us, i.e. it surprises us with unexpected events, and in those moments we have to improvise and find additional money resources. Those people who were not able to save enough will have to borrow. This principle is inevitable and engraved into our culture and sociological systems.
Types of loans
Money can be borrowed from different sources. This completely depends on the situation and personal preferences of the person who is in need of that urgent financial boost. Most common locations where people go for money of this kind are family, friends, colleagues, banks, credit unions and perhaps some other forms of financial institutions. All of those sources will usually give the finds in exchange for a “promise” that the money will be returned within the agreed period, and some arrangements can also incorporate interests.
When it comes to loans taken with commercial banks, most experts divide loans into two basic types, according to the duration of the maturity period of the loan. Those two categories are short term loans and long term loans. These types have many similarities but they also have many points where they differentiate from each other. They are intended for different customers. Banks use this diversity to be able to satisfy as many clients as possible.
Short term loans
Loans which are taken for periods of under one year, or 3 years maximum, are considered short term loans. They are generally taken for smaller amounts. Some banks limit short term loans to $2.000, but this amount can be different depending on the bank in question. Short term loans have higher interest rates than long term loans. They also have much higher monthly installments, or they are payed in one piece. The most common type of short term loans is called payday loans. Payday loans means that the whole borrowed amount is taken of the next paycheck.
Long term loans
Long term loans are different from short term loans primarily because of their maturity date. Since these loans are taken for periods which range from 3 to 25 years, or even 30 in some cases. These loans are intended for those clients who urgently need larger amounts of money. Also they are perfect for customers who want more buying power.
Therefore, people use long term loans when they want to buy a house or a car, or when they are planning a large business investment. Most common types of these loans are car leasing, mortgage loans and student loans. But there are many other sub-types and different purposes of these loans. Long term loans have lower interest rates and lower monthly payments. That fact attracts a lot of clients to this type of financial assistance.
The process of borrowing money from a bank or some other type of financial institution is something which is familiar to most people. Since a large majority of adults is forced, at least once in their lives, to seek help from those facilities. Money is something which we all constantly need. In certain occasions we need larger amounts and it often happens that we do not have enough at that particular moment.
Some people try to predict those expenses and they use savings accounts and other methods of saving to accumulate large quantities of cash. This can be a risky activity and some lack the basic discipline for this process to be successful. Those who are not capable of save enough money are forced to borrow it, whether from a bank or from friends and family.
Types of loans
Banks offer different types of loans. They are designed to suit various needs of the customers and to satisfy every requirement that they may have. Experts often divide loans in two general categories based on the duration of the loan. Those two groups are called short term and long term loans.
Short term loan
Every loan which is taken for a period of under 1 year is usually considered short term loan, but this can sometimes be extended up to 2 or even 3 years. Everything over 3 years falls into the category of long term loans, and they can have maturity date of 25 or 30 years, while some can last even longer. Payback dates are a flexible category, and clients can usually arrange personal specifications of the loan.
Long term loan
When it comes to clients who need large amounts of money in a short period, most experts will advise them to take a long term loan. Since this type of loans has various benefits and advantages over other types. For example, long term loans have lower interest rates. Because banks take some form of guarantee, which they call a collateral. This guarantee reassures them that they will have a return with their loan, even if the client defaults on the payments.
This method is present in mortgage loans, where the house you wish to buy will serve as a collateral. If you are unable to follow on your monthly payments – the property will be seized by the bank.
Another advantage of long term loans is the fact that this type of loans includes lower monthly installments. Simply because the total amount has to be re-payed over a longer period. More months means less money per an individual payment, and this appeals to a lot of people. Since they are left with more money for their everyday expenses and needs.
Therefore, long term loans are a great option for people who need large amounts urgently. But they are unable to return the money in a short period. Long term loans allow them to have larger buying power. To invest in bigger projects and expenses, without disrupting their daily or monthly budget a lot.