A loan is a financial transaction in which the “lender” gives a certain amount of money or a property to the “borrower” with the expectation of total repayment or the return of the property, usually interest and a date of repayment are involved, the interest is generally known as the cost of the loan.
The loans are usually a way to grow the overall money supply from an economy, by providing loans in an economy you open up the competition and you are allowing new products to enter the market and companies to expand their business operations.
Individuals, companies, governments, banks and financial institutions can lend money. Some of them are professional lenders and they are basically selling money to you at a higher cost than they really worth it. Lending is one of the main activities within a financial institution.
There are five main categories of loans.
1. Secured loans – The borrower pledges some properties as collateral.The most common type of secured loan is the mortgage loan which used by many people to purchase properties.However,the bank has the title to the house until the mortgage is fully paid.
2. Unsecured – This type of loan is not secured with collateral but the interest rates applicable could be really high and may not be regulated by law. The most common types of unsecured loans are the credit card debt, the personal loans and the bank overdrafts.
3. Demand loans – Typically they don’t have fixed dates for repayment and they have an fluctuant rate of interest. The borrower can be summoned to pay the loan at any time.
4. Subsidized – Commonly the interest is reduced or does not apply to the loan. The most ordinary subsidized loan is the student loan which has no interest meanwhile the students is enrolled in a college or a university.
5. Concessional loan – This is frequent made by governments to developing countries and they have below-market interest rates.