A financial sum of money lent to an individual or company is called a loan; when money is lent in this manner, the debtor must abide by the repayment terms set by the creditor. 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; normally repaid in regular amounts, which can be on a monthly, but sometimes three monthly basis.
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. Others will repay the debt in equal
instalment with the interest as part of this amount.
Most of the time, this is the only contact the majority of people have with financial companies and it is just one of many roles they have; although this is the most important. Credit and bank loans are a quick and easy way for anyone to increase their cash flow with only minimal effort; whilst other ways to raise capital can be used, this is often the quickest method.
Another common type of debt, particularly in the Western World is a mortgage and is the primary way real estate is purchased, but this is all it can be used for. In this instance, the lender is given security on the money advanced in the form of the title deeds of the house until the debt is repaid 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; they have the option of selling it to reclaim their money or keeping it as an investment.
Even s small loan can be secured but this generally only happens when a person has a poor credit history which could be the case of a person buying a car; where a car is purchased using this method, it becomes the security for the amount borrowed. 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.
Financial companies organize unsecured loans everyday although many people do not even realize that is what they are being provided with; credit cards, a bank overdraft, even a line of credit for instance, are all examples of unsecured lending. The interest rates vary with the lender and type of credit supplied but credit cards around the world have some of the highest rates of interest, whilst a bank overdraft will typically be much lower in comparison.
In some countries, predatory lenders are called loan sharks and it is where they supply money at high interest rates with the sole intention of gaining control over a person. 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. Try to remember what has been written here and you might not have too many problems.
The information, services
and products on this web site are intended for use by residents of the
United Kingdom only. By repaying your borrowing over a
longer term, your overall interest charges will increase. The actual rate available for any product will depend upon
your circumstances. Ask for a personalised illustration.
