Types and classification of bank loans

Monetary relations are an integral norm of modern society. Financial institutions offer their customers a large number of products. Bank loans in all forms and types one of them. This article aims to provide basic information about the concept of credit relations, the main ways of their classification, as well as emerging risks.

Classification by purpose

The lending industry is actively developing, each day offering an increasing number of loan issuing programs. Analyzing the purpose of the loaned money, there are the following main types of bank loans.

Consumer provided to pay for immediate needs. To be spent on any purpose. Issued as a transfer to the card, and directly on the hands.

Scope classification

According to this classification, bank loans are divided according to the parameter of which (circulating or fixed) capital they are intended to finance. Funds allocated to working capital can be invested both in the sphere of production and in the sphere of circulation.

Security classification

Blank (unsecured) loans do not imply any material security for their return and are issued only to borrowers with an impeccable history. Usually, they have a higher interest rate, and their total amount should not exceed the bank’s own capital.

Requirements for the quality and volume of collateral each bank sets independently. Securities, real estate, rights to deposits or other property may be pledged as collateral. Also, the collateral may be a guarantee of another bank or a guarantee of a third party.

In practice, the division of loans into secured, insufficiently secured and unsecured.