It has traditionally been customary to classify a loan according to several basic characteristics. The most important of them include the category of lender and borrower, as well as the form in which a particular loan is granted. On this basis, the following six rather independent forms of credit should be distinguished, each of which, in turn, is divided into several varieties according to more detailed classification parameters.
Bank credit is one of the most common forms of credit relations in the economy, the object of which is the process of transferring money into the loan. Bank credit is represented exclusively by financial institutions licensed by the Central Bank to carry out such operations. Legal entities act as a borrower, and a loan agreement is an instrument of credit relations. Income from this form of credit is received by the bank in the form of loan interest or bank interest.
A bank loan is classified by a number of attributes:
1. According to the terms of repayment:
Short-term loans are granted to compensate for temporary shortage of the borrower's own working capital. Term up to one year. The interest rate on these loans is inversely proportional to the maturity of the loan. Short-term loan serves the sphere of circulation.
Medium-term loans are granted for a period of one to three years for production and commercial purposes.
Long-term loans are used for investment purposes. They service the movement of fixed assets, with large amounts of credit resources being transferred. They are used in crediting reconstruction, technical re-equipment, new construction at the enterprises of all spheres of activity. Long-term loans have been especially developed in capital construction and the fuel and energy sector. The average repayment period is from 3 to 5 years.
Oncological loans subject to repayment within a fixed term after receiving official notification from the creditor (the term of repayment is not specified initially).
2. By method of repayment.
Loans to be repaid by a lump sum contribution from the borrower. This is a traditional form of repayment of short-term loans, which is optimal because it does not require the use of a differentiated interest mechanism.
Loans repaid in installments during the entire term of the loan agreement. Specific repayment terms are determined by the agreement. They are always used for long-term loans.
3. By methods of collection of loan interest.
Loans for which interest is paid at the moment of its general repayment.
Loans, interest on which is paid in even contributions of the borrower during the whole term of the loan agreement.
Loans, interest on which is withheld by the bank at the moment of direct issuance of the loan to the borrower.
4. By methods of granting a loan.
Compensation loans sent to the borrower's settlement account to compensate the borrower for his own expenses, including those of an advance nature.
Paid credits. In this case, loans are received directly for payment of settlement and monetary documents presented to the borrower for repayment.
5. On methods of crediting.
One-off credits granted on time and in the amount provided for in the contract concluded by the parties.
Credit line - is a legally binding obligation of the bank to the borrower to provide him with loans within the agreed limit within a certain period of time.
Credit lines are: - Renewable - is a firm commitment of the bank to grant a loan, the client who experiences a temporary shortage of working capital. The borrower, having repaid a part of the loan can expect to receive a new loan within the established limit and the term of the contract.
Seasonal credit line is provided by the bank, if the company periodically has a need for working capital associated with seasonal cyclically or the need to form stocks in the warehouse.
Overdraft is a short-term loan, which is provided by debiting the client's account in excess of the account balance. As a result, the client's account has a debit balance. Overdraft is a negative balance on the client's current account. Overdraft can be allowed, i.e. previously agreed with the bank and not allowed, when the client writes a check or payment document without the permission of the bank. The interest on the overdraft is calculated daily on the outstanding balance, and the client pays only for the amounts actually used by him/her.
6. By type of interest rate.
Loans with a fixed interest rate, which is set for the entire crediting period and is not subject to revision. In this case, the borrower assumes the obligation to pay interest at a fixed agreed rate for the use of the loan, regardless of changes in the situation on the interest rate market. Fixed interest rates are applied at short-term crediting.