It is now possible to avail different types of loans. In some cases it’s actually harder to make a choice to suit your requirements. Since a number of loans of different types are available, you need to make a careful study to see which is best for you.
Loans vary based on factors like purpose, amount, and terms and conditions. The income of the borrower is also a factor in considering the type of the loan. Moreover, the repayment plans also vary with the types of loan. Some of the options available for the borrowers are fixed monthly repayments, interest only repayments, and income-based repayments. You have to bear in mind that all the different options may not be available from all lenders.
Student loans are the most varied. They do not have to be repaid until the student completes his studies, and he is generally allowed a choice from options for repayment. Interest accrues on the loan for the period till it’s paid back. The student sometimes has to pay interest-only during the first few years after his studies are completed. After that the principal amount and the interest are clumped together. This is a case of capitalized interest student loan.
If you plan ahead before taking a student loan, you can avoid interest accrual and have just the principal amount left to be paid after the completion of studies. In this case, the interest amount has to be paid off while you are studying. You get income-based repayment plans for student loans.
Auto and personal loan repayment plans follow the conventional straightforward method, where there’s interest as well as the principal amount for the fixed monthly repayment.
A standard mortgage loan with a fixed interest rate of interest will require monthly repayments of a fixed amount, throughout the life of the loan. These monthly payments continue the same throughout said period, with a decrease in the interest amount at the end of it, and an increase in the principal amount.
A” balloon” loan is a loan where only repayment of interest is made during the first few years of the loan, and then a balloon payment is required at the end of the interest period, which is in cases a big hassle for the borrower.
The loans discussed here cover almost all of the capitalized interest student loan types available these days, and the convenience of each depends on the student’s financial setup.