Any person borrowing money (a loan) is referred to as the ‘debtor' and the person lending the money is called the ‘creditor'; this is usually finalized in a binding and legal written agreement that ensures the borrower repays the lender. Whilst just about anything, product or service can be lent out; the information below focuses on financial arrangements only. The period a loan will run generally depends on the financial circumstances of the borrower but normally the longer this period, the more it will cost; when payments are made can vary, but they are normally at the same time each month.
This service is generally provided at a cost, referred to as interest on the debt and it can vary how this is repaid. One type of arrangement is to have the interest paid off before the sum so the first few installments might only be the interest charges that have been added. For most people repaying a debt, they know that each month, part of the debt is being paid off along with a small amount of interest that has been added to it.
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. 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; although other money raising methods do exist.
A mortgage on the other hand is designed for one purpose, that of purchasing property or land and is one of the most common types of long term debt individuals experience. However, in this situation a form of security is needed before the money is lent and the title to the property is the normal method for financial institutions to use; releasing them once the final installment is made. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it; they have the option of selling it to reclaim their money or keeping it as an investment.
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; 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; it is rare for the period to exceed five 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 applicable to these different forms may vary depending on the lender, the borrower and the type of credit supplied.
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. This type of lending also takes place with credit card companies around the world who issue credit cards with high charges which take a disproportionate amount of time to pay off; even small balances, just to retain a customer. The wise person treads carefully when dealing with financial institutions as they only have one agenda.
Any person borrowing money (a loan) is referred to as the ‘debtor' and the person lending the money is called the ‘creditor'
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| Loan - Wikipedia, the free encyclopedia A loan is a type of debt. ... Like all debt instruments, a loan entails the redistribution of financial assets ... A type of loan especially used in limited ... en.wikipedia.org/wiki/Loan |
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