A loan is a type of debt and usually refers to one involving a cash sum paid to the borrower by the lender and is a legal contract between the lender or creditor and the borrower or debtor. Lending money is the most usual reason for a loan but it can also include goods, services and even people but this article is dealing with monetary loans only. The period a loan can be repaid will generally depend on the financial circumstances of the borrower but normally the longer this take, the more it will cost.

When loans are repaid a charge is added to the sum owed called the interest which is how the lender can gain from his service. Although not seen as much nowadays one type of financial agreement ensures that the first payments made to clear the debt are in fact just the charges on the sum owed. More frequently the loan is repaid in equal installments a portion of which is the interest.

Most of the time, this is the only contact the majority of contact people have with financial companies but providing loans is just one of many roles they have, although this is the most important. Arranging a loan this way is a normal method for individuals as well as businesses to have a sum of money in their account to do with as they please.

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 al it can be arranged for. Debts of this nature are of course much larger than standard loans and the lending company requires some security from the borrower and the standard method is by retention of the title to the property until the debt is paid back in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it.

In some instances, a loan taken out to purchase a new or used car may be secured by the car itself; in much the same way as a mortgage is secured by housing. To ensure that the finance company does not lose money, secured loans on cars are normally short term and only last a few years.

Unsecured loans are much more commonplace and usually refer to loans, credit cards and bank overdrafts to name a few. Every bank and other financial institution ahs different methods to calculate the interest they charge on unsecured credit but a good rule of thumb is that store cards will be the highest followed by credit cards.

There are many names for it but predatory lending is the most common and used when a company places pressure on a person to use their services in order for the company to have a financial hold on that person. An easy way to do this is for a credit card company to issue cards to individuals and encourage them to spend money on the cards and then keep them paying these amounts off for a long time because they have such high interest rates. Try to remember what has be written here and you might not have too many problems.

Technorati Tags: loans, creditor, lender