Loans

When money is lent to a person or organization, it is said to be a loan; once complete it becomes a legally binding contract. Whilst just about anything, product or service can be lent out; the information below focuses on financial arrangements only. The lender will expect full repayment of the amount borrowed within the time frame arranged when the money was lent; normally repaid in regular amounts, which can be on a monthly, but sometimes three monthly basis.

All monetary debts consist of two elements: the sum owed and the interest charge for the time during which it is payable over; this is added to the overall amount owed. Some companies add the interest onto the repayments but make sure this is the first part to be paid so a number of monthly payments might be required before the capital repayment actually starts to be paid. Others will repay the debt in equal installment with the interest as part of this amount.

Whilst financial establishments can play many roles, this is the most frequent way in which they are used. Bank loans and credit are one way to increase a person's or company's money supply; whilst other ways to raise capital can be used, this is often the quickest method.

Arranging a mortgage, whilst a little more complicated, is in essence the same but the use for which it is required is not flexible and the money can never be used for anything other than buying a house or land. 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; although selling the property is one option, keeping it as an investment is another.

In some instances, a loan taken out to purchase a new or used car may be secured on the car itself; where a car is purchased using this method, it becomes the security for the amount borrowed. The duration of the loan period is often considerably shorter, usually corresponding to the useful life of the car; it is rare for the period to exceed five years.

The average person may have a number of unsecured loans or credit facilities and not even realize it; credit cards, bank overdrafts and other forms of finance all fall into this category. The interest rates applicable to these different forms may vary depending on the lender, the borrower and the type of credit supplied.

Abuse in the granting of money is known as predatory lending; it usually involves providing cash in order to put the borrower in a position where one can gain advantage over them. 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. Always remember to look carefully at the small print of any financial agreement you are about to sign.