Different Types of Bank Loans

Over the past few year banks have tightened their lending practices and have made getting loans more difficult than before. However, banks still offer a wide variety of loans to their customers which can be used for a range of purposes.

The first type of bank loan is a mortgage. A mortgage is a loan that is used by a borrower to purchase a home. Typically, the lender will require the borrower to put forth between 10% and 20% of the purchase price and the bank will finance the rest. Most mortgages are long term loans with terms ranging up to 30 years in length. Since they are secured by the home that is bought, interest rates on mortgages tend to be lower than other forms of loans.

The next type of bank loan is an unsecured personal loan. An unsecured personal loan is a loan that a bank gives to an individual. The loan is not secured by any form of collateral and can be used by the borrower for any purpose that they want. Typically, a lender will base their loan approval on the borrower's ability to pay the loan back and their credit history. However, due to the unsecured nature of the loan, personal loans tend to come with high interest rates.

The third type of bank loan is a business loan. A business loan is a loan that is given to a business, as opposed to an individual. The use of the business loan is normally set out in the official loan agreement, but could be used for a wide variety of purposes including expansion, purchasing inventory, or for working capital. Depending on the use of the business loan, the term length could range from just a few months to more than a decade.

The fourth type of bank loan is a commercial real estate loan. This type of loan is used by an individual to purchase or develop an income producing real estate asset, such as an apartment building or shopping center. These types of loans are normally repaid through rental income that the borrower receives from their tenants or eventual sale of the property.