A loan can be defined as a formal agreement of understanding between an individual in need of money, known as the borrower and the entity or institution which lends money with the undertaking that the same would be returned within a said period of time. A loan is a lifesaver for those who are in dire need of money.
Now, the needs of different people are different, therefore there is a vast variety of loans available in the market. Irrespective of which kind of loan you choose, there is no denying the fact that these are extremely versatile in nature in the sense that they can be put to a vast array of uses. For instance: for purchasing a house, for paying off education-related fees and expenses (in case of students), for buying an automobile and so on.
There are many different types of loans available in the market as far as the duration factor is concerned. The first kind would be short term loan. This kind of solution is meant to last for a short period of time only, generally the maximum time period for a short term loan is one year. In case of business entities, a short term loan is obtained in order to meet its working capital requirements. The next kind of loan would be the medium term loan. The duration of this solution can be anywhere between 2-10 years. This kind of loan is obtained in order to fulfill capital requirements of a company.
Next is the long term loan, which is paid over a very long duration of time, like for more than a decade. Needless to say, the principal of a long term loan would be a huge figure. If you are interested in getting a long term loan then you have to be prepared to submit something valuable as collateral security for the loan.
Loans can also be classified as per the need for security. In this case there would be two kinds of advances: secured and unsecured. A secured loan is a loan wherein some kind of collateral is associated with the borrowing as a precautionary measure to ensure that the borrower repays the amount. An unsecured loan is one wherein the submission of collateral is not required.