What Is Loan

What Is Loan



What is​ Loan?
A loan is​ a​ type of​ debt .​
All material things can be lent; this article,​ however,​ focuses exclusively on​ monetary loans .​
Like all debt instruments,​ a​ loan entails the​ redistribution of​ financial assets over time,​ between the​ lender and the​ borrower.
The borrower initially receives an​ amount of​ money from the​ lender,​ which they pay back,​ usually but not always in​ regular installments,​ to​ the​ lender .​
This service is​ generally provided at​ a​ cost,​ referred to​ as​ interest on​ the​ debt .​
a​ borrower may be subject to​ certain restrictions known as​ loan covenants under the​ terms of​ the​ loan.
Acting as​ a​ provider of​ loans is​ one of​ the​ principal tasks for financial institutions .​
For other institutions,​ issuing of​ debt contracts such as​ bonds is​ a​ typical source of​ funding .​
Bank loans and credit are one way to​ increase the​ money supply.
Legally,​ a​ loan is​ a​ contractual promise of​ a​ debtor to​ repay a​ sum of​ money in​ exchange for the​ promise of​ a​ creditor to​ give another sum of​ money.
Types of​ loans
1.1 Secured
1.2 Unsecured
2 Abuses in​ lending
3 United States taxes
4 Income from discharge of​ indebtedness
Secured
A secured loan is​ a​ loan in​ which the​ borrower pledges some asset (e.g .​
a​ car or​ property) as​ collateral for the​ loan.
A mortgage loan is​ a​ very common type of​ debt instrument,​ used by many individuals to​ purchase housing .​
In this arrangement,​ the​ money is​ used to​ purchase the​ property .​
The financial institution,​ however,​ is​ given security — a​ lien on​ the​ title to​ the​ house — until the​ mortgage is​ paid off 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,​ in​ much the​ same way as​ a​ mortgage is​ secured by housing .​
The duration of​ the​ loan period is​ considerably shorter — often corresponding to​ the​ useful life of​ the​ car .​
There are two types of​ auto loans,​ direct and indirect .​
a​ direct auto loan is​ where a​ bank gives the​ loan directly to​ a​ consumer .​
An indirect auto loan is​ where a​ car dealership acts as​ an​ intermediary between the​ bank or​ financial institution and the​ consumer.
A type of​ loan especially used in​ limited partnership agreements is​ the​ recourse note.
A stock hedge loan is​ a​ special type of​ securities lending whereby the​ stock of​ a​ borrower is​ hedged by the​ lender against loss,​ using options or​ other hedging strategies to​ reduce lender risk.
Unsecured
Unsecured loans are monetary loans that are not secured against the​ borrowers assets .​
These may be available from financial institutions under many different guises or​ marketing packages:
credit card debt
personal loans
bank overdrafts
credit facilities or​ lines of​ credit
corporate bonds
The interest rates applicable to​ these different forms may vary depending on​ the​ lender and the​ borrower .​
These may or​ may not be regulated by law .​
In the​ United Kingdom,​ when applied to​ individuals,​ these may come under the​ Consumer Credit Act 1974.
Abuses in​ lending
Predatory lending is​ one form of​ abuse in​ the​ granting of​ loans .​
It usually involves granting a​ loan in​ order to​ put the​ borrower in​ a​ position that one can gain advantage over him or​ her .​
Where the​ moneylender is​ not authorized,​ it​ could be considered a​ loan shark.
Usury is​ a​ different form of​ abuse,​ where the​ lender charges excessive interest .​
In different time periods and cultures the​ acceptable interest rate has varied,​ from no interest at​ all to​ unlimited interest rates .​
Credit card companies in​ some countries have been accused by consumer organizations of​ lending at​ usurious interest rates and making money out of​ frivolous extra charges .​
Abuses can also take place in​ the​ form of​ the​ customer abusing the​ lender by not repaying the​ loan or​ with an​ intent to​ defraud the​ lender.




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