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Loans and types


Published on

what is a loan?
types of loans?
what are the strategies of marketing of loans?

Published in: Economy & Finance
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Loans and types

  2. 2. • Loan in simplest terms can be explained as a thing that is borrowed, especially a sum of money that is expected to be paid back with Interest. • The act of giving money, property or other material goods to a another party in exchange for future repayment of the principal amount along with interest or other finance charges is called loan. • A loan may be for a specific, one-time amount or can be available as open-ended credit up to a specified ceiling amount. 2
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  4. 4. • A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral. • Secured loans are loans that rely on an asset as collateral for the loan. • In the event of loan default, the lender can take possession of the asset and use it to cover the loan. • Interests rates for secured loans may be lower than those for unsecured loans. • The asset may need to be appraised before you can borrow a secured loan. 4
  5. 5. • Unsecured loans don’t have asset for collateral. These loans may be more difficult to get and have higher interest rates. • Unsecured loans rely solely on your credit history and your income to qualify you for the loan. • In case of default, the lender has to exhaust collection options including debt collectors and lawsuit to recover the loan. • For example-  credit card debt  personal loans  bank overdrafts  credit facilities or lines of credit 5
  6. 6. • Open-ended loans are loans that you can borrow over and over. • Credit cards and lines of credit are the most common types of open-ended loans. • With both of these loans, you have a credit limit that you can purchase against. • Each time you make a purchase, your available credit decreases. • As you make payments, your available increases allowing you to use the same credit over and over. 6
  7. 7. • Closed-ended loans cannot be borrowed once they’ve been repaid. • As you make payments on closed-ended loans, the balance of the loan goes down. • However, you don’t have any available credit you can use on closed-ended loans. • Instead, if you need to borrow more money, you’d have to apply for another loan. • Common types of closed-ended loans include mortgage loans, auto loans, and student loans. 7
  8. 8. Term Loan Personal Loan Home Loan Property Loan Education Loan Vehicle Loan Gold Loan Business Loan Consolidated Loan Pay Day Loan Policy Loan Construction Equipment Loan 8
  9. 9. TERM LOANS • A term loan is simply a loan provided for business purposes that needs to be paid back within a specified time frame. • It typically carries a fixed interest rate, monthly or quarterly repayment schedule - and includes a set maturity date. It is secure type of loan. • A secured term loan will usually have a lower interest rate than an unsecured one. 9
  10. 10. Term Classification Long Term (<3years) Medium Term (1-3 years) Short Term (1 year) 10
  11. 11. PERSONAL LOAN • A personal loan is typically issued for a specific amount and can be used for various purposes at the discretion of the borrower. • A personal loan can be a secured loan or an unsecured loan. A secured loan uses an asset — such as a house or car — as collateral (or support). • If the borrower defaults on the loan, the creditor can take the asset. • An unsecured loan does not require collateral and is considered high risk. As such, it has a higher interest rate. 11
  12. 12. CONSOLIDATED LOANS • Debt consolidation is a widely used term that can imply the use of a number of different debt assistance plans that combine multiple debts, loans or payments. • There are three main types of debt relief options available:  Debt Consolidation Loans,  Student Loan Consolidation,  Debt Management Plans and Debt Settlement. 12
  13. 13. • Things debt consolidation can do: 13 Lower your interest rates Lower your monthly payments Protect your credit rating Help you get out of debt faster
  14. 14. EDUCATION/STUDENT LOAN • A loan offered to students which is used to pay off education-related expenses, such as college tuition, room and board at the university, or textbooks. • Many of these loans are offered to students at a lower interest rate, such as the Perkins loan or Stafford loan. • In general, students are not required to pay back these loans until the end of a grace period, which usually begins after they have completed their education. • One of the major benefits of these types of loans is that they come with low interest rates and do not require collateral or a credit check. 14
  15. 15. VEHICLE LOAN • Most people today need a loan when they buy a new or used car. And the high cost of many cars means that consumers spend years paying for their vehicles. • Because a car loan is such a huge debt for most people, it pays to understand it before entering into an agreement. • A car loan is a secured loan, which means the vehicle serves as collateral on the debt. • If you fail to make your payments, the lender can seize it as payment. • This is much safer for the lender than unsecured debt, such as a credit card account, where the lender has only the card-holder’s promise to pay 15
  16. 16. GOLD LOAN • It is a form of debt financing whereby a potential gold producer borrows gold from a lending institution, sells the gold on the open market, uses the cash for mine development, then pays back the gold from actual mine production. • Gold loans had less appeal in the 1990s as mining companies were offered other increasingly sophisticated financial instruments, such as forwards and options, by the bullion banks. 16
  17. 17. POLICY LOAN • A loan issued by an insurance company that uses the cash value of a person's life insurance policy as collateral. • Traditionally, these were loans issued at a very low interest rate, but that is no longer universally true. • If the borrower fails to repay the loan, the money is withdrawn from the insurance death benefit. • Sometimes referred to as a "life insurance loan." 17
  18. 18. LOAN AGAINST PROPERTY (LAP) • The individual takes the loan by mortgaging the house property. It is a Secured loan • One of the cheapest retail loans after home loans; usually about 12%-16%. • Since the rate of interest is lower, frequently LAP Equated Monthly Installments (EMI) turn out cheaper. • Maximum loan eligibility is determined primarily by the value of the property and income. • The Maximum loan tenure for LAP is up to 15 years (180 months). 18
  19. 19. HOME LOAN • The home loan is a loan advanced to a person to assist in buying a house or condominium. • Purchasing a house can be a valuable form of investment. • However, it requires considerable thought and careful financial planning before taking on such a big step. • If owning a house is part of your financial goal, then you’ll need to know whether you can afford from your income and savings. 19
  20. 20. PAY DAY LOAN • Payday loans are short-term, high-interest loans designed to bridge the gap from one paycheck to the next. • They are predominantly used by repeat borrowers living paycheck to paycheck. • Because of the loans’ high costs, the government strongly discourages their use. 20
  21. 21. CONSTRUCTION EQUIPMENT LOAN • Construction Equipment loans are provided for purchase of both new and used equipment like excavators, backhoe loaders, cranes, higher end construction equipment etc. • The tenure of such loans vary from 12 to 60 months depending upon the deal and nature of repayment capacity. • This is usually a secured loan where the machine itself is hypothecated until the loan is repaid. 21
  22. 22. BUSINESS LOAN • Businesses require an adequate amount of capital to fund startup expenses or pay for expansions. • As such, companies take out business loans to gain the financial assistance they need. • A business loan is debt, that the company is obligated to repay according to the loan’s terms and conditions. • According to the U.S. Small Business Administration, before approaching a lender for a loan, it is imperative for the business owners to understand how loans work and what the lender will want to see from the owner. 22
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  24. 24. The 4 C's of Credit for Loans Character Capital Collateral Capacity To Repay 4 C Concept 24
  25. 25. • Character refers to the financial history of the borrower; that is, whet kind of "financial citizen" is this person or business? • Character is most often determined by looking at the credit history, particularly as it is stated in the credit score (FICO score). • Factors that will affect the credit score include:  Late payments  Delinquent accounts  Available credit  Total debt • The fewer the problems, the higher the credit score. • A high personal credit score (over 700) may be the most important factor in getting a business loan. 25
  26. 26. • Capacity refers to the ability of the business to generate revenues in order to pay back the loan. • In other words capacity measures a borrower's ability to repay a loan by comparing income against recurring debts. • Since a new business has no "track record" of profits, it is riskiest for a bank to consider. 26
  27. 27. • Capital refers to the capital assets of the business. • Capital assets might include machinery and equipment for a manufacturing company, as well as product inventory, or store or restaurant fixtures. • Banks consider capital, but with some hesitation, because if your business folds, they are left with assets that have depreciated and they must find someplace to sell these assets, at liquidation value. • You can see why, to a bank, cash is the best asset. 27
  28. 28. • Collateral is the cash and assets a business owner pledges to secure a loan. • In addition to having good credit, a proven ability to make money, and business assets, banks will often require an owner to pledge his or her own personal assets as security for the loan. • Banks require collateral because they want the business owner to suffer if the business fails. • If an owner didn't have to put up any personal assets, he or she might just walk away from the business failure and let the bank take what it can from the assets. • Having collateral at risk makes the business owner more likely to work to keep the business going, as banks reason it. 28
  29. 29. Letting people know on existing marketing pieces • Putting a tagline on the business cards saying, “we do commercial loans”. • It is in the form of any ads display or radio or otherwise. • Most of the competition does not advertise commercial loans so it helps setting a business apart! 29
  30. 30. Starting where you are • When banks have been in loan business for longtime they have customers from past. • Those Customers may have friends or family members that have some wealth. This is a great place to start. • People with money tend to be on the lookout for ways to make more money. • Banks provide them with the fire to ROI (returns on investment) that blows away their current stock portfolio. • Also, existing Realtors are a great source. 30
  31. 31. Attending networking functions • In commercial lending, more deals get done by networking then by advertisement. • Deals are done by word of mouth more than any other form of real estate. • So it is absolutely critical to go to Chamber of Commerce events and any local Commercial Real Estate Banquet. • With any networking event , the key is to follow up. 31
  32. 32. Sponsoring something at a charity function. • As banks get success in commercial lending they plow some of their profits back into building their business. • A great way to get some business is to get involved in charities. • The wealthy get involved in charities and the wealthy are their target market. • When the charity has a yearly gala (and most do), all the players are there. • Banks Contact the charity ahead of time and ask for sponsorship opportunities. 32
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