Loans

Home

Loans

When people think of loans, they think of a bank or building society lending money to someone with a good credit rating. The person will then pay back that loan, with interest (which is essentially the cost of receiving this service), over a certain period of time. Financial institutions make a lot of money from such transactions as well as from bonds, which are debt contracts.



In some cases, it might be something other than money that is lent; instead it might be a physical object, which again will be treated in a similar way.

There are two types of loan, secured and unsecured loans. A secured loan involves pledging some kind of item such as a car or house as collateral for the loan. This is linked to mortgage loans where by the financial organisation still has some kind of ownership on the property being mortgaged until that property is completely paid off. A similar occurrence takes place with auto loans.



Unsecured loans do not have an asset held against them as collateral and will often take the forms of overdrafts on bank accounts or debt on credit cards.

Our banking system uses loans regularly and they are a common occurrence in day to day life.