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Loan in simple words can be described as a type of debt which is usually taken in need of hour and is to be returned in a specific period. Generally a specific rate of interest is chargeable on the loans and has to be paid along with the principle amount which has been taken as a loan.
There are various kinds of loans and one should set the priorities right before going in for a loan.
Open ended loans can essentially be categorized as the loans in which borrowing can be done repeatedly. Credit Cards are a perfect example of open ended loans. A credit limit has been set in case of credit cards and each time a purchase is made the credit decreases. As the payments are made, the credit increases and the loaning cycle goes on endlessly.
Close Ended Loans on the other hand are loans in which no borrowing is allowed once the loan amount has been paid. Students loans, auto and mortgage loans are perfect examples of close ended loans.
Loans in which the lender can take possession of assets in case the amount is not paid on time come under the category of secured loans.
A distinct drawback on an unsecured loan is that these have higher rate of interest. However, the credit history of the borrower is the sole criterion for awarding of any unsecured loans. In case of any default while paying the loan amount, the lender has to file a lawsuit to recover the loan.
These are short term loans which use your upcoming paycheque as a guarantee. Very high rate of interest is a distinct disadvantage of this loan and one should explore all options before relying on any such option.
These loans should be avoided at any cost. In these kinds of loans, the lenders ask for some prior deposits while offering advance free loans. When the requested amount has been deposited in account of the lender, they simply refuse to lend you the loan amount and disappear.
A loan is provided on Guarantee of one party to assume the debt of a borrower if that borrower defaults. A Guaranteed loan can be limited or unlimited according to the agreement.
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