Loans - general info
A loan is a situation where an individual (the debtor) receives a sum of money from the lender (the creditor) and in return, promises to repay. There is almost always a cost involved in addition to the amount borrowed, which is referred to as interest. Loans are generally (but not always) set up to be repaid in regular amounts over a set period of time. There may or may not be be penalties involved for paying off the debt early in order to save additional interest payments.
A secured loan involves some material property (such as a car, home, land, etc) being promised as a security (collateral) for the loan. Legally, if the debt is not repaid as agreed, the creditor then has the ability to take this property from the debtor. When purchasing a car or home, the car or home is then generally held as collateral on the loan, and may be repossessed by the creditor if payments are not made as arranged. Mortgages on a home are a very common type of secured loan.
An unsecured loan is a loan that is made based only on the promise of the borrower to repay. These take many forms, including credit cards, personal loans, overdraft protections, open lines of credit, etc. Interest rates are typically higher for unsecured loans due to the increased risk taken by the creditor.
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Applying for home loans is not easy. Since pay day loans are not easily available anymore, one may have to resort to applying for a consolidated loan instead. Although the banking loans system state the loan a solution to many a dilemma, the repayment should be managed with care.
Entry Filed under: Loans