With an increase in inflation and poverty, the loan demand is also increasing because of the financial pressure on various households in several countries.
In financial terms, the loan is a certain amount of money transferred by one party to the other with a payback agreement, incurring a debt on the borrower. Loans help to address financial issues and requirements, relieve financial burdens, achieve specific goals, and reduce stress.
You may need to get a loan for pursuing your education, setting up a business, or securing a home, etc. Several organizations and banks offer interest-free or with-interest loans based on specific terms and conditions. If you want car loan then tou can check Bank Al Habib car loan policies for terms & conditions.
Types of Loans Depending on Their Functionality
Depending on the functionality of loans, the following are their different types:
- In a secured loan, your asset is taken as collateral which can be taken by the lender in case of non-payment of the loan.
- In an unsecured loan, there is no collateral and have relatively higher interest rate due to more risks for lenders.
- An instalment loan requires repayment in fixed amounts over a specific period.
- In fixed-rate loans, the interest rate remains unchanged until the loan amount is repaid.
- In variable-rate loans, the interest rate changes based on the prime rate.
Types of Loans Depending on Purpose of Use
Following are the different types of loans being offered by banks in Pakistan depending on your financial usage requirement:
You can borrow this type of loan for any purpose, such as dealing with an emergency financial crisis or for a wedding, home renovation, etc.
Credit Builder Loan
This type of loan helps improve the status of those accounts with poor credit or no credit file and might not need a credit check. The loan amount is put in a savings account by the lender, which you can pay back in a specific time.
Debt Consolidation Loan
The debt consolidation loan can help you pay off high-interest debts and save money if its interest rate is lower. A consolidation debt is also advantageous as you have to pay it back to only one lender with fixed or variable interest rates and different repayment options.
Home Equity Loans
You can borrow a certain percentage of equity in your home for a particular purpose and are instalments loans in which you get a lump sum amount which you have to pay back in fixed monthly instalments for a specific period.
A home’s Purchasing price can be covered with the help of a mortgage loan minus a down payment.
This loan helps you pay your educational expenses whether you are studying in a school, college, or university. It provides forbearance, forgiveness, income-based repayment options, and offers deferment.
With this loan, you can buy a car or any other vehicle, but it does not cover the down payment. Bank Al Habib is the best bank for car loan in Pakistan. and you can check Bank Al Habib car loan policies for terms & conditions.
Things to Consider Before Acquiring a Loan
Acquiring a loan is a crucial decision which requires serious consideration by taking different aspects into account because you have to pay it back, so you should keep the following things in mind:
- Think how much money you can give as a monthly payback amount so that you can pay it back within the set period.
- Conduct thorough research to find which type of loan suits your requirements and check for interest rates.
- Consider whether it is likely to get the loan, and you should not apply too often because it will harm your credit score.
- Check your credit scores and reports to know if you are eligible to apply for a certain kind of loan.
- Get a clear picture regarding the purpose for which you want to use the loan amount to convince the lender to give the loan.
- Check for the interest rates and fees; your good credit score will also help you spend less money on the loan.
- Evaluate the repayment terms of the lender and keep in mind that a longer loan term makes it easy for you to pay back the amount compared to a shorter loan term, which requires more monthly payback amounts.
- Analyze the lender policies regarding the borrowing limits, which will depend on your income, use of the loan, and credit history.