Why Would Owner Draw Money From Company and Then Loan It Back
Loans have become an established part of the U.S. financial system. Whether you need a loan large enough to buy a house or a small, fast loan for an emergency, there are plenty of options out there. The basic premise of a loan is that the lender agrees to lend money to the borrower. This is usually for a set amount of time and with an interest rate. The borrower is then obligated to pay back the loan and interest according to the agreed upon terms. To understand more about loans and lending companies, learn about some common types.
Virtually everyone can relate to this scenario. A bill, like a large car repair bill or medical bill, pops up unexpectedly. Some people may have enough cash stashed away to pay it. Others may not have an emergency fund or credit card set up to cover the cost. That's where emergency loan options come in. These are typically smaller loans that are funded quickly. However, you usually pay a high price for the convenience, as interest rates may be on the higher end. These include payday loans, car title loans, some online loans, cash advances on credit cards and others.
Home Mortgages
The average person can't simply buy a home outright. It can take far too many years to accumulate enough capital. Thus, most people take out home mortgage loans to pay for their houses. Terms for these loans range all over the map and are up to specific lenders to set. Approved FHA lenders (government-backed loans) may offer low interest rates and require a very small down payment. More traditional bank lenders, however, might offer a good rate but you'll have to pay a hefty down payment (sometimes up to 20 percent of the purchase price). Depending on your credit profile, you may need to pay even more than 20 percent as a down payment.
Revolving Loans
Revolving loans, or lines of credit, are a type of loan where you're approved up to a certain limit. You can then borrow up to that limit and repay as you like, although late payments will be subject to late fees and interest.
The most common form of this is credit cards. Home equity lines of credit also fall into this category. They usually have a lower interest rate because you put your home up as collateral. This means the bank can take possession of your home if you default — meaning you don't pay — on the loan.
Specific Loans
There are also loans designed for specific purposes. These include auto loans, student loans and business loans. Funds from these loans must be used for their specific purpose. Oftentimes the terms are more favorable for the borrower. This is because if you're buying something tangible (like a car or equipment for your business) you can use it as collateral.
School loan lenders obviously don't have the advantage of being able to take possession of your education. However, government-backed programs can help you get favorable terms.
Common Types of Lenders
There are several different types of lenders. The most prominent are banks. Credit unions and other financial institutions are also common places to get loana. Nowadays there are also online lenders. It can be more challenging to find legitimate lenders online, but they do exist. A big advantage to online lending is speed. You can even find instant lenders if you look in the right places. Peer-to-peer lending platforms are also becoming more common. This involves borrowing money directly from other everyday investors through an online platform.
If you're in need of money, there are many options for obtaining it. Use this guide to gain a better understanding of the different loan types you might choose to pursue when you're in need of money.
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Why Would Owner Draw Money From Company and Then Loan It Back
Source: https://www.askmoney.com/loans-mortgages/understanding-loans-and-common-lending-companies?utm_content=params%3Ao%3D1465803%26ad%3DdirN%26qo%3DserpIndex
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