Types of loans and credits
Lending money is a form of business known since the dawn of history, even a little further back, if we consider the concept of money and not just the paper money that we know today. Since then until now the banking market has evolved a lot, so that there is a wide variety of loans and credits that can be classified according to the subject requesting them, the destination, the guarantee, and so on. There are personal loans of small amount and fast amortization, such as microcredits CréditoSí , and loans of large amounts such as those that are guaranteed with a house or even a boat.
Loan or credit?
The first thing is to establish the differences between loans and credits . Well, although they are used as synonyms in colloquial language, there are nuances that constitute them in different banking products.
In the loan, the consumer or client receives a previously requested amount of money. This amount must be returned to the lender according to an agreed schedule, including the payment of the interest generated. More the longer the time allowed for the return.
In credit, the client does not have to request the money, but the lender makes it available (although it may be at the request of the interested party). The customer can have all or part of the money, and only pays the interest for the money used. It is the typical example of how a credit card works that has money at your disposal, whether you use it or not.
Classification of loans
Being scrupulously technical, the amount of loans that can be classified can be immeasurable. From the purpose to which the money will be used, the repayment terms, if there are guarantees and guarantees, who is the lender and who is the beneficiary, the interest rates, the constitution of the loan act and the amortization ( to establish some criteria).
Depending on the time to return the money, the loans can be very long-term, long-term, medium-term or short-term. Although it would be more correct to include a fifth category: very short-term loans . This category includes microloans, whose repayment term is limited to 30 days. In the rest of the cases, the time lasts up to one, three or thirty years (approximately) in the case of mortgage loans.
Speaking of mortgages : one of the ways to classify a loan is by the guarantee that is provided. The guarantee is a real and tangible asset whose value ensures the amount of the loan. However, the guarantee can also be intangible, such as a worker's payroll. The most common collateral in loans is the real estate, to understand housing, garage, premises, land, and so on. But did you know that a boat can also be mortgaged? In the 19th century the Naval Mortgage Law was promulgated in order to promote the Spanish Navy. That rule is still valid today in its subsequent revisions, and establishes that merchant ships are the only movable property that can be mortgaged (with the known risk of loss, deterioration or sinking to which the lender is exposed).
The destination or purpose of a loan can also be a guarantee. Thus, a simple classification can be made between consumer loans (the one that is requested to buy a car, for example) or productive loans. The money from the productive loans is committed to an investment such as a car manufacturing project or the opening of a business.
One of the most interesting classification factors is found in the interest rate applied to the loan. The interest can be fixed or variable. Variable rates are associated with an official rate, such as the EURIBOR. This implies that the beneficiary runs the risk of suffering an increase in costs throughout the amortization (if it is for more than 12 months). In the fixed rate there is no such danger, but the rate is usually higher to safeguard possible variations in the price of money.
We could continue spinning even finer and subdivide the categories, including some that we have omitted, but in summary the most common credits that a citizen can access are:
- Fast, very short-term, fixed-interest loans
- Long-term personal loans and fixed interest, with nominal guarantee
- Very long term and variable interest mortgages, with real guarantee
As a curiosity, there is already talk of the "student mortgage" as another type of loan that is intended to meet the expenses of university education backed by the student's potential. This type of loan is very common in the United States and shows the transformation of our society, where debt is currently another form of payment.