Annuity loans, series loans and standing loans: Here we explain the different loan types
Before you go out and take out a consumer loan, it is a good idea to familiarize yourself with the different types of loans available. There are basically three loan types that offer different loan terms. The three loan types are annuity loans, serial loans and standing loans.
In this article you can read more about:
- Different loan types
- Standing (fixed) loan
- Loan types at Loradtell Loan
In general, the loan forms are different in relation to how interest rates and repayments develop over the term. It thus has little to do with the amount of the loan itself, but instead the installment payment – ie the monthly payment you pay for the loan. This will affect the outstanding debt, as this will, depending on the type of loan, be reduced from term to term in connection with the number of repayments. It is advantageous for you to familiarize yourself with the different loan types so that you can better assess your loan offers.
First you get an overview of the three different loan types, and we explain what different types of loans belong to the three general loan types. Next, we will focus on what an annuity loan is and what the advantages and disadvantages of this loan form are. Then we look at serial loans, since this type of loan is partly structured in the same way as an annuity loan. Finally, we look at standing loans, also called fixed loans. Finally, you get an overview of the loans you can get through Loradtell Loan.
Overview of different loan types
Unless you are interested in a home loan, it is enough for you to know that there are differences between the three general loan types and that you will be met with an annuity loan in most private loans as well as collateral loans. When you fill out the loan form at Loradtell Loan, our partners will prepare a loan offer on an annuity loan for you. This is a fairly common type of loan when it comes to consumer loans for individuals.
If, on the other hand, you are interested in a home loan, it may be a good idea to investigate whether your bank and mortgage lender offer both annuity loans and serial loans. A serial loan will be the cheapest solution in the long term, but your finances may not be able to carry a serial loan, as you will have to pay a higher monthly benefit to begin with.
A standing loan is especially popular if it is a start-up business or an investment where the consumer is sure that there will be a large enough return to pay off the debt at the end of the loan. It can be risky with this kind of loan unless you are completely sure that you have enough capital to pay off the debt eventually.
Loan Types Overview
|personal loans||Consumer||Cash credit (quick loans)|
|mortgages||Part of Mortgage||Interest-free portion of mortgage loans|
What is an Annuity Loan?
The word annuity indicates a fixed amount of payments. That is, with this loan, you pay off a fixed amount at each installment . The repayments are the amount that you pay on your loan at each installment.
At the beginning of the loan, your monthly payments will mainly go towards paying interest on the loan, as the outstanding debt will be greater. Thus, there is only room for small installments at the beginning . This will gradually change and typically, when two-thirds of the maturity has expired, the residual debt will be halved. After that, the installment portion of the installment payment will take up a larger share, while interest rates will be smaller , as the outstanding debt is not as large. In the figure below we have illustrated the benefit structure of an annuity loan.
There are pros and cons to an annuity loan. One advantage is that the benefits on after-tax loans are relatively small in the first period of the loan. This is because the interest payments are deductible . One possible disadvantage is that you must have relatively good capital as the loan charges an equal installment at each term from the start of the loan.
You can use our new loan calculator to become even clearer on how annuity loans work.
For example, try adjusting the maturity of a loan example and see how borrowing costs and the loan’s APR change.
For a series loan, you must pay the same in installments at each installment for the entire term of the loan. This means that at the beginning of the loan you will have relatively large benefits , which will gradually decrease the closer you get to having the loan paid off.
The reason for this is that the more you pay off the loan, the less the principal becomes , which results in lower interest rates. As you approach the end of the loan term, you will therefore experience a relatively lower payment, which is due to lower interest rates as the principal has decreased throughout the period.
The advantage of a series of loans is that you have to pay an ever smaller interest rate at each term, the closer you get to the end of the loan. The disadvantage, however, is that this type of loan requires a relatively large repayment at the beginning of the loan period .
A standing loan is also called a fixed loan . A major advantage of the standing loan is that the loan is completely repayable throughout the loan period until the loan expires . You just have to pay interest at each term. This also means that a standing loan must be repaid at once
The outstanding debt will be the same throughout the term, which means that the interest amount will remain the same at each term.
When the loan expires, you have to pay one large installment to pay off the entire loan at once.
If you have the financial capital to repay the entire loan in one go, this is an advantageous loan for you. Namely, the maturity of a standing loan is shorter than that of normal bond loans. Consequently, lower interest rates are often associated with the standing loan . We have illustrated the benefit structure of a standing loan below.
At Loradtell Loan, through our partners, we offer a variety of loan types. As a form of loan, they are all characterized by being an annuity loan with fixed monthly payments .