What is The Financial World Without The Many Different Types of Bank Loans?
When the concept of banking first arrived on the scene, a bank was viewed as a place where people could deposit their money in order to keep it safe. This was the premise of the most ancient of the banks.
But the person who came up with the idea of a bank loan – or a bank that loans out money to people for an interest charge, can be credited with the most important inventions of all time.
There is no bank in the world that does not issue loans; it’s their primary reason for existence. Modern banks offer a wide array of loan products for every consumer (and business) need.
All of which comes at a nice interest though! Speaking for myself, my first relationship with a bank was when I opened my first savings account. But it has been the bank loans that have made me dependent on the bank for my survival.
In fact, my first loan was for the purchase of my first new car. After this, I took a home mortgage loan to purchase a condo.
You see, it’s unlikely that anyone has money sitting around to buy a house for cash on the transaction. Most people lack the discipline to save money every month for a house when paying rent; this opens up the next kind of bank loan – the mortgage loan.
A typical bank loan for a home runs 15 to 30 years, and most people will end up accruing equity in a home, paying interest on it, and otherwise, becoming home owners in fee simple.
Other bank loans are issued for various reasons, from personal loans to buy items that matter to you, all the way to lines of credit tied to an asset. Personal loans are usually used for things like marriages, emergencies, and major repaired. Secured loans are usually tied to improving the value of the asset that’s securing the loan.
And then of course, there are student bank loans. There are bank loans that will help you buy a car. And again, there are bank loans that will help you buy computers, washing machines and other consumer goods.
Yes, even a credit card is a bank loan, and is one of the reasons why our society is so mired in debt. This trend for unsecured debt has shown up in other ways with debt consolidation loans – taking out a loan to pay off other loans at higher interest rates or higher monthly payments is a thriving business.
Most loans issued worldwide to consumers are housing and mortgage loans. They’re a tiny fraction of the business debt market, where the entirety of the financial industry runs off of leveraging assets by taking out loans.
Most businesses rely on having short term credit terms to make shortfalls in payroll, slow sales periods, or capital investments. More than 99.99% of all lending is made by banks to businesses. This is why investment banks got a bailout and you didn’t. If those loans dry up
One could go so far as to say that without bank loans, the vast majority of business worldwide would collapse. Small wonder then that banking, and by association investment, lending, finance and credit are the words that drive business in the modern day.