What Types of Loans(Credits) are there?by Admin | September 5, 2021
We can classify the different types of loans(credits) according to different criteria. Firstly, we can classify them according to their origin, from which we would extract bank credit, mortgage credit and credit against public debt issues.
Secondly, depending on the purpose for which the credits are intended, we can find production credit or consumer credit. In addition, we can also classify loans on the basis of the repayment term, and we would have short- and medium-term loans and long-term loans. Finally, and taking into account the collateral as a criterion, we can divide them into personal credit or real credit.
Next, we are going to make a more exhaustive analysis of each type of credit. All credits, although of different types, have in common the scheme that we have seen before, with the obligation of the debtor to repay the two amounts: money and interest.
Types of credit depending on the origin
- Bank credit
Credit is usually given by a credit institution, i.e. bank, through the signed of a contract.
This is not a loan, and there is a difference, with credit it doesn't matter if you use it or not, you are still obligated to return the amount borrowed plus the interests.
- Mortgage Credit
Mortgage loan is the money granted by the bank has to be used for the purchase or construction of a house on land that you already posses, or buying of the land.
Usually it is a purchase that is expensive, the creditor will require some kind of a guarantee, maily the same property that you have bought. Normally the entities lend upwards of 70% of the value of the mortgaged property.
Note: It is important to emphasize that these credits are normally paid in the medium and long term.
Types of credit depending on the purpose of the loan
- Production or commercial credit
Commercial credit is dedicated to financing the fields related to agriculture, livestock, fishing, commerce, industry and transportation of the different economic activities. They also help in the payment of purchases of goods, working capital, services and suppliers. They are usually paid in the medium and short term.
- Consumer credit
When we speak of a consumer credit, we refer to those that are requested to cover more personal needs, and are usually for goods or services. These are loans that are only granted to individuals, never to corporations. Among them we could find the purchase of a car, planning a wedding, starting a business, going on vacation. They are usually paid in the short and medium term.
Types of credit according to the term
- Short and medium-term loans
Short and medium-term loans are those in which the repayment of the amount and interest is made over a period of one to four years.
- Long-term loans
Long-term loans, however, establish that the repayment of the amount and interest can be made over a period of up to 40 years and no less than eight years.
However, in both cases, when it is a question of specifying the terms, it is usually agreed between the entity and the client, or it is established as a condition in the credit itself.
Types of credit depending on the guarantee that assures the payment of the repayment and interests
- Personal credit
For example, a guarantee. In this case, in addition to the debtor, the loan is signed by another person or entity, who undertakes to pay in the event that the principal debtor does not comply with the obligation. This person is called guarantor.
- Real credit
In this case it could be, for example, a mortgage, in which the creditor could collect its debt from the balance obtained from the sale of the property. In other words, it is a credit secured or backed by an asset, such as a house, a car, etc.
What criteria do I use to choose a loan?
When choosing a loan, whether it is a mortgage, personal or commercial loan, it is necessary to take into account a series of elements in order to be able to compare one loan with another.
Interest rate: we must identify whether the interest rate offered is fixed, variable or mixed.
Credit term: you have to establish the time during which you want to manage your credit, since many times the interest rate is fixed according to it.
Total Annual Cost (TAC): considers both the initial interest rate and any other interest to be paid at the end of the credit term.
Total amount to be paid, taking into account the interest rate, commissions and extra costs.
Time limits: check the conditions under which the credit is offered, since some institutions, after a certain term, decide to change the credit conditions and the rate.
Interest calculation: it is always cheaper to have a loan where the interest is calculated daily.
Arrangement and management fees.
Knowing which are the types of credit that exist allows you to evaluate which is the one that adapts to your personal and financing needs. Remember that when choosing, you must take into account criteria such as interest rate, term, commissions, and whether it is mandatory to leave a guarantee.