A Loan according to Merriam Webster dictionary is; money lent at interest or omething lent usually for the borrower’s temporary use.
A loan is when you get hold of cash from a friend, bank in alternate for future reimbursement of the cash plus interest.
Here’s how the loan process works; When someone needs money, they apply for loans from banks, companies, governments or other entities. The borrower may need to provide specific details, such as the reason for the loan, financial history and other information. The lender reviews the information, including the personal debt-to-income ratio (DTI) to determine if the loan can be repaid. Depending on the creditworthiness of the applicant, the lender rejects or approves the application.
Before we go ahead to talk more on loans and it’s advantages, let’s talk about types of LOANS
1: Secured Loans:
This type of loan requires an asset to secure the loan. If the borrower defaults on the loan, the lender has the right to take the collateral. However, secured loans are more volatile than unsecured loans because you may want to lose your collateral if you cannot clear the debt. You consequently think very carefully – and consider other picks – earlier than taking out a secured loan.
2: Unsecured Loans:
This kind of loan mean that the borrower does not have to provide assets as a guarantee. In a non-secure loan, the lender is very complete when evaluating the financial condition of the Borrower to be sure if they are capable of taking the loan. However, unsecured loans are more risky than fixed loans for lenders, you need a high credit score for approval.
Under these loans we have:
Mortgage loans
Small business loans
Student loans
Home equity loans etc.
Loans can be a good thing, but they can also mar you, one of the keys to financial success is knowing when a it is a good solution for your situation. If you cannot repay it within the specified term, then a loan is not a good idea. Either you want to promote growth, maintain day-to-day operations, acquire new equipment, smooth and support unbalanced cash flow, establish a reliable supply chain, or finance existing projects, exploring the benefits of borrowing can be the right decision.
Borrowing money allows you to support aspects of the business that you may not be able to pay. However, even if you are lucky enough to have enough capital, giving up savings can cause problems later in the development of your business and limit your ability to establish a reputable credit rating. So, instead of pre-buying goods and services, exploring the benefits of borrowing money allows you to split or postpone spending until later, and your goals are more affordable in the long run.