In early civilisations, people acquired what they wanted based on a barter system. This system did not price commodities with money or coins but was a system of exchange where you give and take as per your need. With human inventions, currency systems were established worldwide that need to be paid in order to purchase a commodity.
With changing times, the services that people wish to avail have also been priced heavily. But this cannot stop one from acquiring what they need! This is where the concept of loans come in. Be it a home loan or a debt consolidation loan, several services and agencies readily help people with their finances!
In Australia, loans are prevalent in the finance sector. A new lending report by the Australian Bureau of Statistics shows that there is a consistent surge in home loans in Australia. Information from the Reserve Bank of Australia shows that the total number of outstanding personal loans amount to about $200 million as of September 2020!
What are loans?
In finance, loans are a form of debt. Essentially, an individual who requires money borrows it from a bank, loan agencies or other entities with a promise to pay it back later. However, since this type of transaction involves third parties, they often have an interest rate, much like collateral on a property.
Loans usually have a comparison and confirmed rates. These are numbers that an individual needs to consider before choosing which offer to pick. Comparison rates give an idea about how much a personal loan will cost, including account fees and other charges. These are general rates that are subject to change. However, confirmed rates are finalised prices that an organisation quotes after the borrower provides personal information or other security details.
The borrower is liable to pay back the debt with the interest that adds to the debt with increasing time. Usually, government-affiliated banks tend to offer loans with lower interest rates than private agencies.
Types of Loans
The reasons for which loans are availed differ from an individual to another. Some may benefit from it for personal use, while others might need it for various purposes. Typically, there are three major types of loans offered worldwide:
- Personal Loans: These are loans that are acquired for highly personalised reasons. This type of loan does not require any security. For example, a debt consolidation loanis a personal loan that does not require any collateral. Furthermore, these loans have minimal documentation. So they are easy to obtain. Other personal loans include student loans for education, travel loans, etc.
- Vehicle Loans: This is a popular category of loans. These loans are for people who wish to buy their dream cars or bikes. It is also utilised by people who have businesses that use vehicles like trucks and lorries. These loans could be for any automobile, from cars to jet skis! Typically, they require collateral and are well-documented.
- Medical and Dental Loans: These loans are also often clubbed with personal loans, but they are a separate category as they are more sensitive than the other personal loans. Such loans usually require a higher rate of security and have thorough documentation. Sometimes, they are linked with the individual’s insurance. Breast augmentation, hair transplant, eye surgery, etc all have particular loans that one can utilise.
Why do we need loans?
Many services like education, housing, business startup resources, etc only hike in expense as the world advances. When such services become difficult to afford all by oneself, loans offer financial support and assistance so that an individual can satisfactorily avail of the services they need.