Personal Finance Loans

How Personal Finance Loans Work

Most personal finance loans work in a similar way. The process involves applying for your loan; receiving your money and spending it for the purpose you borrowed it. Then comes the repayment part which is mostly a monthly payment made to your bank or lender. The duration of the loan depends on what the loan terms are. Your repayment amount will include the money being repaid against the original amount you borrowed, as well as an amount that you pay as interest; which is the cost of taking the loan. When you reach the end of your loan period, you would have repaid the amount you borrowed along with the interest charged.

Common Types of Loans

Consumers and small businesses obtain loans with varying maturity periods to fund purchases of real estate, transportation, equipment, supplies, and a vast array of other needs. According to W. Keith Schilit in The Entrepreneur’s Guide to Preparing a Winning Business Plan and Raising Venture Capital, they receive these loans from a number of sources, including friends and relatives, banks, credit unions, finance companies, insurance companies, leasing companies, and trade credit. The state and federal governments sponsor a number of loan programs to support small businesses. Following are examples of some common types of loans.

SHORT-TERM LOANS. A special commitment loan is a single-purpose loan with a maturity of less than one year. Its purpose is to cover cash shortages resulting from a one-time increase in current assets, such as a special inventory purchase, an unexpected increase in accounts receivable, or a need for interim financing. Trade credit is another type of short-term loan. It is extended by a vendor who allows the purchaser up to three months to settle a bill. In the past it was common practice for vendors to discount trade bills by one or two percentage points as an incentive for quick payment.

INTERMEDIATE-TERM LOANS. Term loans finance the purchase of furniture, fixtures, vehicles, and plant and office equipment. Maturity generally runs more than one year but less than five. Consumer loans for autos, boats, and home repairs and remodeling are also of intermediate term.

LONG-TERM LOANS. Mortgage loans are used to purchase real estate and are secured by the asset itself. Mortgages generally run between ten and forty years. A bond is a contract held in trust with the obligation of repayment. An indenture is a legal document specifying the terms of a bond issue, including the principal, maturity date, interest rates, any qualifications and duties of the trustees, and the rights and obligations of the issuers and holders. Corporations and government entities issue bonds in a form attractive to both public and private investors. A debenture bond is unsecured, while a mortgage bond holds specific property in lien. A bond may contain safety measures to provide for repayment.

Choosing The Right Personal Finance Loan Company

There are many companies that put you through complicated paperwork and take a long time before you actually get your loan. However, it is possible to get a personal finance loan even when you have bad credit. This is why you must choose the right lender for you, saving you time, resources and money. When you know where to find it, your personal loan can be a quick process. A little bit of research goes a long way.

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