The characteristics of different loan types

A bank loan is a transaction in which a finance entity provides a customer a certain amount of money (established previously) by means of a contract, under which said customer has the obligation to repay the money within a specific time frame. Usually, the amount of money loaned by the bank accrues interest that must also be repaid, which will vary based on the type of loan requested.

Therefore, a bank loan is a commitment that must not be taken lightly. It is also important to find out what its characteristics are beforehand in order to make the most of it. You must know what types of loans exist in order to ask the bank for the one that best suits your needs.

Loan types

Although there are different types of loans, they all fit into two major categories called personal loans and mortgages.

Personal loans are used to finance a customer's specific needs over a certain period of time. The principal (amount of money requested) is generally small for these types of loans. Personal loans include consumer loans and student loans. Consumer loans are used to finance durable consumer goods such as a car. Whereas, student loans (as the name suggests) are designed to cover the cost of graduate and postgraduate studies and university exchanges such as the Erasmus program.

You can use the loan calculator on BBVA's website to see the different types of loans the bank offers and check the conditions based on the amount of money you want. BBVA offers up to ten different types of loans within this category: this is a clear example of how varied these loans can be.

Mortgages are designed to finance the acquisition of a house and, sometimes, to help set up a business. As well as involving larger amounts of money than a personal loan, mortgages also provide the bank with a security interest. This means that if the customer does not repay the loan, the bank can have the mortgaged property sold in order to recover the debt, or acquire ownership of it.

In addition to the two types of products described above, loans also differ depending on whether or not they are subject to a guarantee. When requesting a loan, a guarantee is used to confirm that you will comply with your financial obligations. The guarantor states that they will honor the guaranteed party's commitment to repay the loaned capital plus interest in the event the borrower is not able to. Guarantors must have the following characteristics (among others):

• - Being of legal age: this requirement may be waived under certain isolated and exceptional circumstances.
• - Be solvent: the guarantor's income must be higher than the obligations the party requesting the loan agrees with the bank.
• - Stable income: as well as being solvent, the guarantor must also have guaranteed income (wherever possible).
• - Own unencumbered real estate: this requirement is particularly important for mortgages, as the guarantor may have to cover the loan conditions with their own property.