August 4, 2021 Last updated August 4th, 2021 61,192 Reads share

The Pros and Cons of Different Loan Types

The Pros and Cons of Different Loan TypesImage Credit:

Nowadays, a loan is becoming an increasingly popular service in banking. This is a certain amount that is issued to a person by a bank at a certain percentage. This money must be paid in installments. The loan is given for a certain period: it can be given for a year, two, ten years.

Types of Loans for Individuals

Loans are available with or without collateral. For example, a consumer loan often does not require collateral, while a car loan or mortgage often requires collateral or property. Forms and types of lending are spelled out in the US legislation. When borrowing money, it is very important to study the requirements for the borrower.


Speaking about what credits are, most people immediately imagine banks’ advertising slogans about consumer loans. There are enough varieties of such programs. A consumer loan is issued based on the purchase of something for the funds issued. You can borrow money at directloantransfer with any type of loan you prefer.


Targeted lending differs from non-targeted lending in that the bank closely monitors the movement of the funds issued and does this until they are fully repaid. The purpose of taking credit is negotiated in advance taking into account what kind of loans there are. This can be repairs or other expenses. It is obligatory to strictly report to the banking institution providing the relevant documents and evidence.


Other consumer types of loans are called non-targeted. This concept and types of transactions do not imply tracking exactly where you spend the borrowed amount. The bank can ask about the purpose of lending but will not track spending. Usually, non-targeted loans are presented in the tables of promotional materials of any bank. The characteristic of an unremarked credit is that it is issued faster but the interest on it is higher. In the case of a targeted loan, the bank sees and controls the situation, while in a non-targeted loan, higher interest rates become its insurance.

Credit Card

There are also non-obvious loans. They are firmly rooted in the daily routine of many citizens. Credit cards have their specification of the credit type. The funds are already available to the card client at any time.


Depending on the bank, credit cards are serviced free of charge or for a fee even if you do not use funds on them. The term “loan” is applied to a credit card. Since it is issued, an agreement is concluded issuing a credit card is faster and easier. This is how banks seek to expand the circle of customers.

Types of Loans by Maturity

  • Short-term (issued for up to 1 year);
  • Medium-term (up to 5 years);
  • Long-term (more than 5 years).

With the help of credits, people can get the desired thing without waiting for a salary. They are so accustomed to credits that sometimes they do not even notice some of the nuances. In addition to the advantages, there are many significant disadvantages.

Pros of Loans

  • It is possible to get a cash loan when money is needed. There is no need to wait for a salary and save money for many months, or even years;
  • It is easier to give money for the purchase, it is allowed to give in parts;
  • It is recommended to save on interest if you return the money to the bank during the grace period;
  • If you make payments on time, your credit history will improve. Banks can offer loans on more favorable terms than before;
  • The contract is concluded for a specific amount. Any fluctuations in the exchange rate and other circumstances will not affect the amount to be paid;
  • Nobody bothers to independently compare and choose a bank with more favorable conditions.

Cons of Loans

A loan is a tempting offer. Still, there are many pitfalls to be aware of. It is important to remember that there are no interest-free loans. It is not profitable for banks to distribute money just like that. Any credit consists of an interest rate and bank charges. Even if the percentage is zero, this does not mean that there will be no additional payments.

  • Overpayment for the item. This is the most significant flaw.
  • We’ll have to somehow cut the budget in order to make a payment every month;
  • Fines and other stringent conditions if the payment was late;
  • The age of people who can borrow starts from 22;
  • Banks only recognize “white wages”. You need to provide a certificate of income. If there is no permanent place of work or an employment contract with the employer has not been concluded, then the loan will not be approved. But some banks, due to competition, do not adhere to this rule and record income from the words of the loaned;
  • You must have a citizenship and residence permit at the place where the credit is taken;
  • There is no guarantee that a person will be able to pay the required amount without delay. Anything happens in life, but banks usually do not take this into account.

Even though loans have a lot of disadvantages, people still take them to get what they want right away. Perhaps the right decision would be to save money. But if you take a loan, this is a forced circumstance, then you need to find a good bank, calculate the exact percentage and monitor the papers that you sign. We must not forget that credit is a responsible business. It is better to think well and choose the right solution.

Sahzadi Sarah

Sahzadi Sarah

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