Loosely defined, a long term loan is a type of debt which can be paid off slowly, over an extended period of time that typically exceeds one year. There are five main types of long-term loans namely, mortgages, cash loans or debentures, property and motor vehicle loans, education loans, and bonds.
Mortgage– A mortgage loan functions to help an individual to secure real estate property
Education Loans– These loans are issued to university and college students by financial institutions as well as banks in order to help them pay for the costs associated with acquiring an education.
Commonly referred to as grants, these long-term loans are payable after the student has completed their studies.
Debentures/ Cash Loans– Various financial institutions, as well as banks, provide long-term loans to companies in order to help them finance business ventures such as business expansion. Long term loans are also available to individuals who need the money to meet their various personal financing needs.
Bonds– Refers to a long-term loan issued to individuals who require the money to finance any continuing investments, expenditure, or business activities. Bonds are commonly secured loans that are issued by public authorities, the government, credit institutions, and companies. They are characterized by having fixed interest rates.
Property and Motor Vehicle Loans– Vehicle loans are issued by banks as well as car dealers and work to enable borrowers to purchase cars at a flexible or fixed interest rate and must be paid off within a defined period of time. Property loans, on the other hand, are typically offered by banks in conjunction with furniture dealers to individuals who require purchasing property such as furniture.
3 Critical Long-Term Loans Selection Tips
Comparison Analysis of Different Lenders (Affordability in terms of Fee and Interest Structures)
As one of the key long term loans selection tips, taking the time research in order to find out the differences between origination fees, interest rates, and broker’s fees across a wide range of providers offering long term loans is always a good idea. To perform a thorough comparison, one must add up the total costs that are associated with the various financing methods. This will adequately provide you with the information that will enable you to select the lending institution that will have accrued the lowest amount of money you have to repay in the future after the inclusion of the institutions’ interest rates have been added to the amount borrowed.
Terms of Repayment
Checking the lending institution’s terms of repayment is one of the most vital long term loans selection tips. In this case, one ought to consider the structure of the financing arrangement particularly those related to the aspect of the periodic payment. This will let you know how many as well as how often the institution requires you to make these payments. As such, you should always look for lenders who provide loans that are characterized by a greater allocation to principle in order to minimize the accrued long-term costs you will have to repay.
Check the Institution’s Financing Requirements
To do this, one ought to consider all of the personal requirements that each lender places on the loan applicants. Generally, financing requirements consist of detailed financial ratio tests and credit score requirements.
The above mentioned 3 long term loan selection tips will enable you to deliberate on all of the various ramifications that acquiring a long term loan could pose in the future when one has to make repayments.