Five Classifications of Loans

These days, loans are quite common in the United States. According to finder.com’s survey, about 34% of Americans took out a loan within the past year. There are many ways to take out a loan. Banks, websites, and peers are all avenues for lending. However, there are also many types of loan classifications, each with certain stipulations.

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Pass Loans

Pass loans are the best type of loan to have. If someone has a pass loan, he or she is paying the commitments on time and on a regular basis. The lender is not concerned about the debtor paying back the principal or interest.

Special Mention Loans

Debtors with special mention loans are dealing with more hardship than those with pass loans. He or she is having trouble making a payment or are not regular with the payments. The lender or institution is starting to feel threatened. However, they are not in a bad spot yet.

Substandard Loans

The borrower’s troubles are more obvious when they have a substandard loan. There are more difficulties and the lender is threatened. It is unlikely that the debtor will repay the loan, but not all hope is lost yet.

Doubtful Loans

The lender has lost hope when the doubtful loan comes. The borrower is not going to pay the institution. The institution collects collateral because the principal nor interest is repaid. The lender experiences a loss and this is not good for the lender or the borrower.

Loss Loans

Loss loans are the worst of the five types. The institution cannot collect the loan through collateral. Legal proceedings do not work either. The loan is uncollectable and the lender loses the repayment.

Loans are becoming more and more common in the American lifestyle. There are many options of institutions to lend from. Try to keep the loan as a pass loan and not a loss loan so that all parties benefit.