Loans and Lending
Let’s say you want to buy a candy bar, but don’t have money with you at the moment. So you ask your friend, Peter, to give you $2 for a candy bar and you promise to pay him back tomorrow with interest. This is a loan…
Loans are a financial tool in which one party borrows money from another, such as mortgage, credit card debt, or a personal line of credit, in return for the value being repaid in the future. The lender frequently adds interest or finance charges to the principle value, which the borrower must return in addition to the initial sum. In a loan, money is given to another person in exchange for repayment of the loan principle plus interest.
The lending party will only lend you money if they are sure you can pay them back because otherwise, they is losing money. Before making a loan offer, lenders will analyze the borrower's income, credit score, and debt levels.
Types of Loans
Loans occur in a variety of types. There are several aspects that might distinguish the expenses connected with them, as well as their contractual conditions.
Secured Loan vs Unsecured
Loan Secured loans are frequently utilized for higher loan amounts, such as a home loans, mortages, or vehicle loans. Secured loans requires collateral, which is an item that a lender can seize from a borrower if they fails to repay a loan. Lenders prefer secured loans since they are less risky. Borrowers choose secured loans since the interest rates are often lower. Unsecured loans have no collateral to back them up.
Unsecured loans typically have higher interest rates than secured loans because the lender runs a bigger risk of not being paid back. Interest rates on unsecured loans can vary depending on a number of factors, including the borrower's credit history. A credit card is a good example of this.
Revolving Loan vs Term Loan
A revolving credit loan is one that is renewed as debt is paid off, whereas a term loan is one that is paid off over a predetermined length of time in equal monthly amounts.
Beware of Loan Sharks!
A loan shark is a slang term for predatory lenders who give informal loans at extremely high-interest rates, often to people with little credit or collateral. It’s essential to know the interest rates of the loans you are taking to avoid this trap.
