|
TYPES
OF LOANS
Most
of us are familiar with a few generic loan types such as a bank loan
or a mortgage loan. During
the past two decades many new loan descriptions have come into play.
Just as in any other profession we remain unfamiliar with the
glossary terms. So it is
in the field of finance. The
following loan type description will help broaden our understanding of
finance terminology and help us to find our place and make the right
approach in the credit market.
Asset
Based Loan
A
loan using assets of a commercial business as collateral security for
the loan. Assets may
include accounts receivable, equipment, furniture, fixtures and
inventory or other materials used in the product of the business.
Assumption
Loan
A
loan assumed or taken over by a party other than the original
borrower. The assuming
party agrees to take over all the terms of the loan as though he were
the original maker of the loan.
Bank
Loan
A
loan originating from a banking institution.
The actual loan type could be one of a variety offered by the
bank.
Brokers
Loan
A
loan made to stockbrokers and secured by stock as the loan security.
Call
Loan
A
loan that may be immediately terminated by either the lender or the
borrower. Generally
confined to "stock exchange loans" or commercial loans.
Commercial
Loan
A
loan made to a commercial institution, generally a business entity
engaged in a commercial venture.
Construction
Loan
Generally
a short-term loan made to a builder of a home, secured by the real
estate for the purpose of financing the construction.
Conventional
Loan
A
loan that is not connected with or backed by a government institution.
Consumer
Loan
A
loan made to a consumer for a number of different purposes.
This loan will differ from a commercial loan in that it is not
being used for business or commercial purposes-it is a personal loan.
Credit
Card Loan
A
cash advance against the credit line of the cardholder.
To be repaid according to the terms of the Credit Card Company.
Conditional
Sales Contract
Similar
to an installment loan. A
contract for the sale of personal property with buyer taking delivery
of the property but title remaining with the seller or lender until
final payment.
Debt
Consolidation Loan
Similar
to refinance loan. A new
loan made to consolidate and pay off existing debts and loans. Usually made to lower monthly payments of the borrower or to
gain a better interest rate.
Demand
Loan
A
loan that has no fixed maturity date.
Payable upon demand of the lender.
Sometimes referred to as a "call loan."
Factoring
Loan
A
loan made to a commercial business using accounts receivable as
security for the loan.
FHA
Loan
A
loan that is backed by the Federal Housing Administration of the
Federal Government.
Floor
Plan Loan
A
loan made to a dealer where equipment or inventory is taken as the
security for the loan. To
be repaid as the security is sold.
Government
Loan
A
loan made with government involvement.
It may be funded directly from the government or it may be made
by private lenders and backed by government guarantee or government
insurance.
Installment
Loan
A
loan made where the borrower is to repay the loan in a predetermined
number of installments over a specific period of time.
Security may be furniture, auto, equipment, etc..
Insurance
Loan
A
loan made by the Insurance Company to its insured using the cash value
accrued in the insurance policy.
Land
Contract Loan
A
simple note or other document covering the sale of real estate where
no transfer of title is affected until the contract has been paid. Commonly used by a seller when selling a lot or acreage.
Also referred to as a real estate contract.
Mortgage
Loan
A
loan agreement between borrower and lender generally covered by a
note, where the lender takes real estate as the security for the loan.
Passbook
Loan
A
loan made to the savings depositor by the savings institution.
Security for the loan is the savings account of the depositor.
The savings account must be pledged to the savings institution.
Permanent
Loan
Generally
a long term loan made to finance real estate over a period of several
years-may be used to pay off a construction loan upon completion of
construction.
Personal
Loan
A
loan obtained by an individual borrower.
Usually an amount $5000 or smaller.
Generally made for the purpose of debt consolidation or some
other small purpose need. Similar
to a consumer loan.
Refinance
Loan
A
new loan made to pay off the existing debt with cash out a
possibility. Cash or
better interest rate is generally the motive.
Residential
Loan
A
mortgage loan made where the security is a single-family dwelling or
no more than a four plex.
Secured
Loan
Either
a time or demand loan secured by marketable securities or other
valuable collateral or security.
Self-Liquidating
Loan
Most
commonly a loan secured by given products which-when liquidated will
pay off the loan. An
example would be crops, equipment, and other floor plan financing.
Sinking
Fund Loan
Generally
a large commercial or development loan amortized to be repaid over a
period of years. A fund
is created with part of the repayment set aside earning an interest
rate. The fund s designed to pay off the principle loan in most
cases.
Unsecured
Loan
A
loan made to the borrower without using any collateral or security for
the loan. Commonly called
a signature loan. The
loan is made on the premise of income or good credit.
VA
Loan
A
loan that is backed by the Veterans Administration of the Federal
Government. Available to
certain veterans.
|