There are different types of loans available to individuals and businesses. The two most basic kinds of loans include lines of credit and installment loans, which can be either short-term or long-term. They are explained in some detail below:
- Overdraft – The bank provides financing when required, but only up to a predetermined limit. You can borrow and repay up to the limit repeatedly within the set timeframe.
- Installment loan – The lender provides a lump amount at the commencement of the loan. The loan uses a repayment plan with equal payments throughout the year(s).
- Short-term loan – Used for a particular purpose, and repaid after this purpose has been served. These loans often last less than 12 months.
- Long-term loan – A formal agreement, often exceeding one year. This loan is generally used for improvements which will increase business profit. Some of these profits are then used to repay the loan amount.