Types of Bank Loans The loans extended by banks are classified in different ways, depending upon the purpose

of the bank classifying them.

1. According to Maturity Short-term Loans. Short term loans are those paid within any period up to but not more than one year. Consumption credits, mercantile credit, retail credit, import or export credit are generally, loans under this type. Medium-term (or intermediate) Loans. Medium-term loans are those payable after a period of one year but not exceeding five years. Most farm loans or equipment loans fall under this category. Long-term Loans. Long-term loans are those that are payable within periods longer than five years up to twenty-five or more years. Real estate loans, industrial loans, investment loans, developmental loans belong to this type. Demand (or call) Loans. Demand loans are loans demandable by the bank within the period of twenty-four hours. The two main purposes of this credit are: a) To restore the position of a bank whose legal reserve is deficient of the legal reserve requirement; and b) To finance the buying and/ or selling activities of securities or stock brokers.

2. According to Security Secured Loans. Secured loans are those backed up by any property acceptable by the bank, and are pledge as collateral to fulfill the repayment of the loan in case of default of the debtor. Examples are real estate loans, chattel mortgage loans, and crop loans. Unsecured Loans. Unsecured loans are not backed up by property of any kind. Consumption loans in general belong to this type.

Ref.: Applied Principles: Money, Credit, Banking by F. P. Cabalteja

3. According to Purpose Agricultural Loans. Agricultural loans extended by our banks today include equipment loans, crop loans, real estate loans, commodity loans and the Masagana 99. These loans may be either short, medium; or, consumption or productive; or, of domestic or foreign source. Commercial Loans. Commercial loans extended by banks are used for the financing of trade and commerce, particularly for production, manufacture and marketing of goods. The primary aim is to provide merchants with adequate working capital. This type of loan can be short or medium term; or secured or unsecured, depending upon the degree of risk. Investment Loans. Investment loans of this nature are for the financing and construction or purchase of fixed capital for use in business. The proceeds could also be used to purchase stocks and bonds of already existing stable corporations, such as those loans extended to members of the SSS or GSIS. Consumption Loans. Consumption loans, as the term implies, refers to all those advances for the purpose of promoting the consumption activities of the individuals. The proceeds are used for either the payment or purchase of final goods and services for the buyer. Industrial Loans. The proceeds of this loan is for he financing of manufacturers productive activities. These are usually big loans which require the substantial banking of the securities that are satisfactory to the lending bank. Development Loans. Developmental loans are extended for the purpose of speeding up the economic development of the economy. The primary aim of this type of loan is to help those engaged in productive activities promote and accelerate production, employment, income, and standard living.

Ref.: Applied Principles: Money, Credit, Banking by F. P. Cabalteja

Real Estate Loans. Real estate loans are extended generally to home builders, subdivision owners or developers and to business firms in order to purchase or improve real estate property for the purpose or another.

4. According to Purpose Direct Loans. Direct loans are those made directly to the makers of promissory notes, the interests of which are collected at the date of maturity together with the principal. Discounts. Discounts are advances whereby the bank deducts the interest at the time the loan is granted from the face value of the promissory note or commercial paper for the purpose of encashing it before the date of its maturity. Rediscounts. Rediscounts are those advances made on commercial paper which have previously been discounted. Overdrafts. An overdraft refers to a special banking accommodation whereby the amount appearing on the face value of a check, acceptance, promissory note, or other similar commercial paper, exceeds the funds on which the instrument are drawn.

5. According to Method of Release Lump Sum. Lump sum releases are loans that are granted in their entire amount to bank barrowers. Usually these are small short-term cash loans of consumption. Installment. Installment releases refer to the loans involving large amounts and for long-term. Generally, in granting real estate loans, banks release the first fifty percent of the face value of the loan upon the borrowers meeting some conditions and requirements.

6. According to Manner of Repayment Lump Sum. Lump sum payment loans are those repaid by borrowers at

Ref.: Applied Principles: Money, Credit, Banking by F. P. Cabalteja

the agreed date of maturity in their entire amounts. These are the small loans and usually consumptive in nature. Installment. Installment payments are made by the banks borrowers in small amortizations in order to assure full repayment of the loan and interest at the date of maturity without much difficulty on the part of borrower. Self-liquidating Loans. Self-liquidating loans extended by the

Development Bank of the Philippines, Private Development Banks, the Philippine national Bank, and Rural Banks are those loans, the repayment of which whether in lump sum or by installment, comes from the income of the investment to which the loan was applied. Non-self-liquidating Loans. Non-self-liquidating loans are those loans the repayments of which are made from the income of the borrower regardless of its source.

Ref.: Applied Principles: Money, Credit, Banking by F. P. Cabalteja