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A loan can be referred to as money, property or any other material goods that are given to an entirely different party in an agreement to be paid later or in the future. Loans often come with extra charges and these charges are called interest rates. If you are into the lending business then you would know that interest rates are the main purpose of loans. Loans are always made for a specific amount of time after which the lender is fully liable to take any action if the item loaned is not paid.

Loans can come from different individuals, corporations and even financial institutions. The government nowadays also gives loans to those in need and all these people do is to offer a way to grow the money supply of that economy. In an economy, money lending expands business operations.

How loan works

The regular terms of a loan is agreed and signed by both parties. In some loans collateral is requested to be granted. Most of the loans known to man have provisions regarding the amount of interest to be paid. This interest is decided according to the time taken to pay the full debt. In loans, when the full debt is paid, the transaction ends except the borrower is willing to renew the agreement.

Types of loans

There are two major types of loans known to man and these are unsecured loans and the secured loans. The unsecured loans are loans that do not require any collateral before you are granted the loan. But on the other side is the secured loan; the secured loan is the type of loan that requires a collateral that is worth the item you are borrowing. In secured loan, if your debt is not paid, the lender is entitled to assume the collateral to be his own. When going for secured loans, it is advisable to be a hundred percent sure of what you are doing as it has led to the downfall of many.

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