Types of loans:
Mortgage
- Mortgages are loans to buy a house, land, factories or other types of property.
- Often the duration of a mortgage for repayment is more than 5 years. The amount is often above $100,000.
- Under a mortgage, the bank has the property as a security, just in case the loan cannot be repaid, the bank can possess it.
Personal Loan
Personal Loans are for the purchase of cars, furniture, education or travel. The amount is smaller than mortgage, often less than $150,000. It can be classified as:
- Secured Loan - a loan guaranteed by an asset.
- Unsecured Loan - no initial deposit is paid. The interest rate on an unsecured personal loan is usually higher than a secured loan.
Credit Card
- Credit Card is a popular short term borrowing for daily transactions
- The most common card networks are VISA, MasterCard and American Express (Amex).
- There is a credit limit which is the maximum amount that the cardholder can spend per month.
- There are no interest expenses if the cardholder can repay the full amount each month. Otherwise the interest rate can reach upwards of 20%.
Bank Overdraft
- Bank Overdraft is a form of short term borrowing often used by businesses with short-term cash flow problems.
- It is when the normal savings account has a negative balance.
- The interest charge can be high for bank overdrafts.