Various Types of Bank Loans
A bank is an institution which is engaged in the business of money and loan. The more loans a bank can provide better and beneficial for the bank it will be. The loan should be provided to the appropriate users and they must be monitored in order to ensure the repayment of principal along with interest as and when become due, Loan can be of different types according to the terms, users and security.
Classifications based on Users:
- Consumer Loan: Banks provides loans for durable goods/ appliances and commodities like loans free freeze, TV, computer etc.
- Housing Loan: This includes loans given to the fixed or low-income people for housing purposes. This loan is usually intermediate or long time.
- Education loan: Some of the banks also provide loans to the people of the society in order to meet their educational or medical needs after being sure about the repayment.
- Working capital Loan: This type of loan is given to the business/ industry to provide the capital required for purchasing raw materials, paying wages etc.
- Export-import Loan: Huge amount of capital is required for procurement and replacement of machinery/equipment for the industrial organization.
Loans for the business person:
- Working capital Loan: For maintaining day-to-day transactions, business persons need a great deal of working capital. By providing a working capital loan, banks help to solve this working capital necessity of the business persons.
- Export-import Loan: Banks also helps in export-import firms/ companies by issuing L/C, bill of exchange, discounting etc.
Loans for farmers:
- Crop Loan: For buying seeds, cows and fertilizers, farmers need money. They borrow the money from the bank in order to meet the expenses required.
- Non-Crop Loan: Farmers also need money for poultry, fisheries, agro-business, agro-processing, and other purposes. In this case, socialized/ commercial banks provide small/medium loans to the farmers.
Framing Equipment Loan: To purchase framing equipment, banks also provide a loan to fanners. Framing equipment may include – power tiller, tractors, machinery for irrigation.etc.
Small Business Loan: Banks may provide leans to landless people to establish income Venerating microenterprises, small business, poultry farms or fisheries. The purpose of banks is to help landless people to overcome financial distress as well as to build up some capital for future investment.
Housing Loan: Bank may provide housing loans to those who have the small piece of land but don’t have any resource to erect a house just to protect them from rains and sun shines beside earning social status, and protection from thieves.
Classification based on term/ periodicity:
Short-term Loans: This loan is sanctioned for less than one year. These can be two types:
- Loans provided for immediate use and payable on demand.
- Loans payable on short notice.
Medium-term Loans: Usually, loans with the maturity or l to 5 years are called the midterm loan. However, commercial banks give midterm loans of a maturity of 1-3 years.
Long-term Loans: Loans with a maturity of more than 5 years are called long-term loans.
Classification based on security:
- Unsecured Loan: Banks, often, provides loan without any type of collateral to the reliable persons or institutions as clients having profound goodwill, excellent track record or sometimes to the very poor clients.
- Fully Secured Loans: If the loan is given by taking the security/collateral of the amount exceeding the amount of loan or just equal to the amount of loan, it is called “fully secured loans”.
- Partly Secured Loans: If the amount of loan is not fully secured, a rather partial amount of collateral is provided to cover the loan sanctioned; it is called “partially secured loan”.