what is loan and types of loan

A loan is a lump sum of money that you borrow with the expectation of paying it back either all at once or over time, usually with interest. Loans are typically a fixed amount, like $5,000 or $15,000. The exact amount of the loan and interest rate varies depending on your income, debt, credit history, and a few other factors. There are many different types of loans you can borrow.

A loan is when you receive money from a friend, bank or financial institution in exchange for future repayment of the principal, plus interest. The principal is the amount you borrowed, and the interest is the amount charged for receiving the loan. Since lenders are taking a risk that you may not repay the loan, they have to offset that risk by charging a fee - known as interest. 

Types of Loan
Knowing your loan options will help you make better decisions about the type of loan you need to meet your goals. 
Open-Ended loans Open-ended loans are loans that you can borrow over and over. Credit cards and lines of credit are the most common types of open-ended loans. Both of these loans have a credit limit which is the maximum amount you can borrow at one time. You can use all or part of your credit limit depending on your needs. Each time you make a purchase, your available credit decreases. As you make payments, your available increases allowing you to use the same credit over and over as long as you abide by the terms. 

Closed-ended loans are one-time loans that cannot be borrowed again once they’ve been repaid. As you make payments on closed-ended loans, the balance of the loan goes down. However, you don’t have any available credit you can use on closed-ended loans. Instead, if you need to borrow more money, have to apply for another loan and go through the approval process over again. Common types of closed-ended loans include mortgage loans, auto loans, and student loans. 

Secured loans Secured loans are loans that rely on an asset as collateral for the loan. In the event of loan default, the lender can take possession of the asset and use it to cover the loan. Interests rates for secured loans may be lower than those for unsecured loans. The asset may need to be appraised to confirm its value before you can borrow a secured loan. The lender may only allow you to borrow up to the value of the asset. A title loan is an example of a secured loan. 
Unsecured Loans Unsecured loans don’t require an asset for collateral. These loans may be more difficult to get and have higher interest rates. Unsecured loans rely solely on your credit history and your income to qualify you for the loan. If you default on an unsecured loan, the lender has to exhaust collection options including debt collectors and lawsuit to recover the loan. 

Conventional Loans When it comes to mortgage loans, the term “conventional loan” is often used. Conventional loans are those that aren’t insured by a government agency like the Federal Housing Administration (FHA), Rural Housing Service (RHS), or the Veterans Administration (VA). 

Varieties of Loans 
Personal loans - You can get these loans at almost any bank. The good news is that you can usually spend the money however you like. You might go on vacation, buy a jet ski or get a new television. Personal loans are often unsecured and fairly easy to get if you have average credit history. The downside is that they are usually for small amounts, typically not going over $5,000, and the interest rates are higher than secured loans. 

Cash advances - If you are in a pinch and need money quickly, cash advances from your credit card company or other payday loan institutions are an option. These loans are easy to get, but can have extremely high interest rates. They usually are only for small amounts: typically $1,000 or less. These loans should really only be considered when there are no other alternative ways to get money.

Student loans - These are great ways to help finance a college education. The most common loans are Stafford loans and Perkins loans. The interest rates are very reasonable, and you usually don't have to pay the loans back while you are a full-time college student. The downside is that these loans can add up to well over $100,000 in the course of four, six or eight years, leaving new graduates with huge debts as they embark on their new careers. 

Mortgage loans - This is most likely the biggest loan you will ever get! If you are looking to purchase your first home or some form of real estate, this is likely the best option. These loans are secured by the house or property you are buying. That means if you don't make your payments in a timely manner, the bank or lender can take your house or property back! Mortgages help people get into homes that would otherwise take years to save for. They are often structured in 10-, 15- or 30-year terms, and the interest you pay is tax-deductible and fairly low compared to other loans. 

Home-equity loans and lines of credit - Homeowners can borrow against equity they have in their house with these types of loans. The equity or loan amount would be the difference between the appraised value of your home and the amount you still owe on your mortgage. These loans are good for home additions, home improvements or debt consolidation. The interest rate is often tax deductible and also fairly low compared to other loans.

Small business loans - Your local banks usually offer these loans to people looking to start a business. They do require a little more work than normal and often require a business plan to show the validity of what you are doing. These are often secured loans, so you will have to pledge some personal assets as collateral in case the business fails.