Dear children, many names are said, and if you have ever applied for a loan, you have probably noticed that there are many different types to choose from; Flexible loans, unsecured loans, frame loans… Note that it is not just in the name the differences lie, but in the terms. Here we have gathered a few of the most common loan types on the market today, and tried to give a simple explanation of them and a few other loan terms.

If there are other terms you would like to explain then please contact us – you know, we at InstaFinance don’t think like a bank, we think like you – and we are here when you need us.

What is the difference between these loan types?

A flexible loan is a loan with an upper limit on what you can take out as a loan. You can choose to pay only a minimum amount per month if you prefer and the repayment period is flexible.

A credit loans  are flexible loans that you can use for whatever you want, but that requires security in your home and then usually used for mortgages.

A consumer loan , or a personal loan ,  is a secured loan that can be used for whatever you want – and that is not given for a specific purpose. Since a consumer loan is given without collateral, there is often a higher interest rate on a consumer loan than a loan where the bank pledges your assets, since the bank then takes a higher risk.

A repayment loan can be paid down in two ways;

An  annuity loan  – a loan that is repaid with equal installments until the loan is repaid.

A  serial loan  – a loan with a variable installment amount. The repayment on the amount remains constant throughout the period while the interest portion of the loan is decreasing as the loan is repaid.

Secured loans , or mortgages, are loans where the bank secures against default by taking collateral in an object such as your house or apartment which is why it is also often called mortgage .

How is the installment amount calculated?

An installment amount is the amount you pay to the bank each installment, which is a specific period of time, usually one installment is one month, and the installment amount usually consists of:

• Repayment – it is the  sum that goes to the actual repayment of your loan.
• Interest – it is the bank’s compensation for lending money.
• Term charge – it is the bank’s fee to cover  its maintenance costs.
• What is the difference between nominal and effective interest rates?
• Nominal interest is the accrued interest on the loan amount for a specific period.

Effective interest rate is the nominal interest rate plus all fees and other charges on your loan such as termination fees and setup fees.

It is the effective interest rate that tells you what the total cost of your loan will be.

What does borrowing really mean?

Borrowing is when you increase an existing loan or extend the credit limit.