What is a Loan?

A loan is a type of debt. All material things can be lent, but this article will only focuses on monetary loans. Like all debt instruments, loans require a redistribution of financial assets over time between lenders and borrowers.

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 price as interest on 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 most important tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is a typical source of funding. Bank Loans and credits is one way to increase the money supply.

Legally, the loan is a contractual promise by the debtor to pay a sum of money in exchange for the promise of a creditor to give another sum of money.

Type of loan
1.1 Secured
1.2 Unsecured
2 Abuse in lending
3 United States taxes
4 Revenue from discharge of indebtedness

Secured

A secured loan is a loan that the borrower pledges some assest ( like a car, property, etc) as a collateral for the loan

A mortgage is a very common type of debt instrument, it used by many individuals to purchase housing. In this arrangement, the money was used to acquire property. Financial institutions, is given security – a lien on the title to the house – until the mortgage is paid off in full. If the borrower default on the loan, the bank have the legal right to repossess the house and sell it to recover the outstanding amount.

In some cases, a loan taken out to buy new or used car can be secured by the car, in the same way as a mortgage is secured by the housing. The duration of the loan period is much shorter Рoften corresponding to the useful life of the car. There are two types of auto loans; direct and indirect. A direct auto loan is where banks give loans directly to consumers. An indirect auto  loan is where a car dealership acts as an intermediary between the banks or financial institution and the consumers.
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 stockof a borrower is hedged by the lenders against loss, using options or other hedging strategies to reduce the lender risk.

Unsecured

Unsecured loans are monetary loans that are not secured against the borrower assets. This perhaps available from financial institutions under various guises or marketing packages:
Credit card debt
Personal Loans
Bank overdraft
Credit facilities or lines of credit
Corporate Bonds

The interest rate to those different forms may vary depending on the lenders and borrowers. It may or may not be regulated by law. In England, when applied to individuals, it could under the Consumer Credit Act come 1974th

Abuse in lending

Predatory lending is a form of abuse in the granting of loans. These include the granting a loan in order to put the borrower in a position that someone will get benefit from it. Where the creditor is not permitted, may be considered a loan shark.
Usury is a different form of abuse, where the lenders charge exessive interest. In different periods and cultures the acceptable interest rate is vary, from no interest at all to unlimited interest rates. Credit card companies in some countries have been accused by consumer organizations of lending at exorbitant interest rates and making money out of frivolous “extra charge”. Abuses can also take place in form of the customer abusing the lender by not repaying the loan or with an intent to defraud the lender.

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