What is a Loan?
A loan is a type of debt and usually refers to one involving a cash sum paid to the borrower by the lender; the borrower must abide by the payment terms by signing an agreement before the funds will be released. Lending money is the most usual reason but it can also include goods, services and even people but this article is dealing with those of a financial nature. Unlike most other types of loan, those involving cash will gradually be paid back over a period of time previously arranged; the usual repayment method is based around monthly installments but this period can be longer.
This service is generally provided at a cost, referred to as interest on the debt and it can vary how this is repaid. It is not uncommon for a company to have a policy where the interest is front-loaded and paid first; then the capital sum is paid afterwards. The more common type of is where the interest charges are added to the capital sum then the total is divided into equal amounts with a small amount of interest being paid each month.
Acting as the provider is one of the principal tasks for financial institutions. Credit and bank loans are a quick and easy way for anyone to increase their cash flow with only minimal effort; other ways to raise capital are available but none as easy as this.
Long term financial arrangements designed for individuals and companies to buy real estate is called a mortgage but it can only be used for this purpose. Debts of this nature are of course much larger than the standard and the lending company requires some security from the borrower; the standard method is by retention of the title to the property until the debt is paid back in full. Defaulting on a loan like this could mean that the bank or other lender could repossess the house and then re-sell it; whilst they can reclaim money owed immediately this way, they may also decide to retain the property until a later date.
There is nothing to stop any lender asking for the loan to be secured and this can happen when a car is bought using this method; in much the same way as a mortgage is secured by the house itself. In this instance the life of the loan will not exceed the useful life of the vehicle; where cars are concerned, this term will only last a handful of years.
The marketing companies are clever at disguising unsecured loans and the vast majority of people do not even realize they probably have them; credit cards, bank overdrafts and other forms of finance all fall into this category. Typically, interest rates on credit cards or store cards will be the highest but all unsecured credit rates will of course vary from one lender to the next.
On occasion it is has been known for financial companies to apply direct and indirect pressure for someone to use one of their services so that the company will have a hold over the individual; this type of abuse is known as predatory lending. Criticism of some credit card suppliers in a number of countries is also made as they issue cards to individuals at extremely high rates of interest in an underhand attempt to keep them paying off even small balances for a long period. You would be wise to be wary of financial arrangements that seem to good to be true because they probably are.
This service is generally provided at a cost, referred to as interest on the debt and it can vary how this is repaid. It is not uncommon for a company to have a policy where the interest is front-loaded and paid first; then the capital sum is paid afterwards. The more common type of is where the interest charges are added to the capital sum then the total is divided into equal amounts with a small amount of interest being paid each month.
Acting as the provider is one of the principal tasks for financial institutions. Credit and bank loans are a quick and easy way for anyone to increase their cash flow with only minimal effort; other ways to raise capital are available but none as easy as this.
Long term financial arrangements designed for individuals and companies to buy real estate is called a mortgage but it can only be used for this purpose. Debts of this nature are of course much larger than the standard and the lending company requires some security from the borrower; the standard method is by retention of the title to the property until the debt is paid back in full. Defaulting on a loan like this could mean that the bank or other lender could repossess the house and then re-sell it; whilst they can reclaim money owed immediately this way, they may also decide to retain the property until a later date.
There is nothing to stop any lender asking for the loan to be secured and this can happen when a car is bought using this method; in much the same way as a mortgage is secured by the house itself. In this instance the life of the loan will not exceed the useful life of the vehicle; where cars are concerned, this term will only last a handful of years.
The marketing companies are clever at disguising unsecured loans and the vast majority of people do not even realize they probably have them; credit cards, bank overdrafts and other forms of finance all fall into this category. Typically, interest rates on credit cards or store cards will be the highest but all unsecured credit rates will of course vary from one lender to the next.
On occasion it is has been known for financial companies to apply direct and indirect pressure for someone to use one of their services so that the company will have a hold over the individual; this type of abuse is known as predatory lending. Criticism of some credit card suppliers in a number of countries is also made as they issue cards to individuals at extremely high rates of interest in an underhand attempt to keep them paying off even small balances for a long period. You would be wise to be wary of financial arrangements that seem to good to be true because they probably are.
