What Are the Types of Bank Loans?

In world banking practice, there is no single classification of bank loans. This is due to differences in the level of development of banking systems in different countries, the ways in which they provide loans. However, most often in the economic literature, there is a classification of loans according to the following features:

  • purpose of a loan;
  • field of use;
  • terms of use;
  • repayment method;
  • types of interest rates;
  • sizes.

Types of Bank Loans By the Purpose:

  • industrial;
  • agricultural;
  • trade;
  • investment;
  • consumer;
  • mortgage.

Industrial loans are granted to enterprises and organizations for the development of production, to cover the costs of purchasing materials, etc.

Agricultural loans are granted to farmers, peasant farms with the aim of facilitating their tillage, harvesting, etc.

Consumer loans are available to individuals to cover immediate needs, repair and purchase of apartments, houses, etc.

Mortgage loans are granted on the security of real estate for the purpose of construction, acquisition or reconstruction of housing.

Types of Bank Loans Depending on the Scope of Use

These are loans to finance fixed or working capital. In turn, loans to working capital are divided into loans in the sphere of production and in the sphere of circulation. At the present stage of development of the economy, the most profitable and, as a result, the most widespread are loans directed to the sphere of circulation.

Loan Types Depending on the Term

Term loans are usually divided into:

  • short-term (up to 1 year),
  • medium-term (from 1 to 3 years),
  • and long-term (over 3 years).

Types of bank loans for collateral are divided into unsecured and secured. Unsecured loans are issued to first-class borrowers without the use of secondary forms of loan repayment. Secured loans are the main type of modern bank credit. Depending on the type of security, they are usually divided into collateral, guaranteed and insured.

By the method of repayment, bank loans are divided into loans repayable at a time, and loans repaid by installments. Loans repaid by a lump sum are a traditional form of short-term loan repayment, since they are convenient from the point of view of legal registration. Loans repaid in installments mean repayment of the loan in two or more payments over the entire loan period. Specific conditions for the loan return are determined in the loan agreement and depend on the object of credit, term of the loan, inflation processes, and a number of other factors.