Secured Loans

• Mortgages, equipment loans, auto loans and certain credit lines backed by minimum deposit requirements, securities or other financial assets are called secured loans. This means that the money is being lent to you on the condition that you give the bank the right to seize and re-sell the real property or financial asset attached to the loan if you default on your payments. Secured loans can have terms as long as 30 years or longer. Some banks will lend against invoices, inventory and other short-term assets via what is called a revolving line of credit.
  
  

Unsecured Loans

• Credit cards and certain short-term lines of credit are unsecured loans. They are only backed by the borrower's promise to pay, not by any bank rights to sell certain specified assets in the event of default. Unsecured loans are short term and generally in relatively small amounts. They are mostly convenience loans made as an incentive for a customer to continue to keep doing business at that bank. Unsecured loans require a track record or credit rating that indicates you are likely to pay off the loan as promised.
  
  

Leases

• Leases are secured loans, but they do not loan the full purchase price of the vehicle or equipment. The purchase must be accomplished at the end of the lease with a balloon payment to the legal entity that owns the rights to the car, which is usually the bank or its agent. Lease payments go mostly toward paying the finance charge, or interest, on the loan with the principal left to pay off at the end. Generally, a car is returned to the bank leasing agent for resale into the certified used car market and the customer leases a new car to replace it. Leases are an example of that third type of loan that differs from the basic loan structure in specific details.
  
  

Letters of Credit

• Letters of Credit (LOC) also fall into the miscellaneous area of bank lending. LOCs fund international trade. If you have a manufacturing company and you receive an order from a customer in Japan, you will ask that customer to have his bank forward you an LOC stating that the customer has on deposit enough money to pay for the goods ordered, and payment will be made when the goods are delivered to the customer. An irrevocable LOC is considered as good as cash and can be used as collateral for a manufacturer's loan, which allows you to manufacture the goods to ship out. When the goods are received by the customer, his bank wires the money to your receiving bank -- generally the one that wrote the manufacturer's loan against the LOC -- and the LOC terminates and the manufacturer's loan is repaid, with the balance remaining in your account.