write a essay on bank loan
Answers
If you have never received a loan to purchase something, you are certainly in the minority! Loans can be a great thing, but they can also get you into trouble. One of the keys to being financially successful is understanding when loans are a good solution for your situation. Loans are never a good idea if you can't afford to pay them back in the required time frame. Let's explore what a loan is and find out some of the common ways to borrow money.
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. Loans typically are secured or unsecured. A secured loan involves pledging an asset (such as a car, boat or house) as collateral for the loan. If the borrower defaults, or doesn't pay back the loan, the lender takes possession of the asset. An unsecured loan option is preferred, but not as common. If the borrower doesn't pay back the unsecured loan, the lender doesn't have the right to take anything in return.
Types 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.
Explanation:
Bank Loans Disadvantages
1389 Words6 Pages
Bank loans are loans from the bank which is based on the future value of the business. Banks are very particular when it comes to granting loans because they want to be sure that the borrower will be able to repay. In some situations, if the loan is not repaid to bank can take possession of the borrower’s personal assets. Even though the bank pays for the business, they do not take possession of the establishment. Figuratively, when Joe Smith pays off the loan, he doe not have any more ties with the bank, unless he asks for a subsequent loan. A precaution that must be taken when requesting a loan is the cost of bank loans. Interest rates are very high and must be paid regardless of if the specific business became successful. This is a huge risk that new business owners, who decide to take out a loans, have to take. Borrowers receive tax deductibles which makes it easy for businesses to make monthly loans payments and keep up with interest rates.
US Small Business Administration (SBA) loan is the most common loan…show more content…
About forty-four percent took this route in 2007. A business credit card is vey quick and easy for short term needs and can build purchasing power. It is easier to get qualified, builds credit and comes with rewards and incentives. New businesses who do not have a long credit of history favor the credit card route because it is easier to receive than a bank loan. In today’s world, checking and using credit cards online are easy. Many major card offer rewards to businesses. The down fall of using credit cards is that it is more expensive. There is a monthly balance that owners have to pay off. If an owner lacked responsibility than they could face incurring late fees and penalties. Security issues are also an issue when using credit cards if they are not managed carefully.