A Loan is a kind of debt. A borrower receives an amount as loan from the lender on certain terms and conditions. The terms include the repayment period, instalments, rate of interest and so on. The borrower legally promises to pay the lender the loan amount along with the interest within the stipulated time agreed by both the borrower and the lender. The loans are sometime offered as cash and sometimes the lenders simply extends credit. For instance the banks issue credit cards to the borrowers.
When banks issue credit cards to their borrowers, they don t provide cash. The banks offer them a credit limit depending on the repayment capacity of the individual. Nevertheless the borrowers can utilize the funds up to their credit limit. Similarly working capital limits are offered to industrial and business organization to meet their working capital requirements.
There are basically three types of loans issued to the borrowers. First one is secured loans, the second being unsecured loans and the third one is demand loans. Secured loans are offered against collateral securities. They issue loans against pledging some movable or immovable assets. The interest rate is less for the secured loans.
Mortgage and housing loans are the examples of secured loans. These loans are called secured loans because the banks can take possession of the properties pledged if the borrower does not repay the loan. At the same time banks and financial intuitions are offering unsecured loans too to their valuable customers. The interest rate will be more for the unsecured loans. Credit card loans, bank over drafts, personal loans, and credit facilities are the examples of unsecured loans. If the borrower does not pay it would be difficult for the lenders to collect the amounts from the borrowers.
Demand loans on the other hand are short term loans. There may not be any fixed time of repayment. The demand loans can be both secured and unsecured. Loans are given to borrowers to make use of the funds and earn more money. The borrowers should grow with the money lent by the banks. The banks also would grow with the interest they earn from the loans. Both the borrower and the lender are benefited by loans, however those who struggle to make repayments may need to seek some form of debt consolidation and debt management advice.
When banks issue credit cards to their borrowers, they don t provide cash. The banks offer them a credit limit depending on the repayment capacity of the individual. Nevertheless the borrowers can utilize the funds up to their credit limit. Similarly working capital limits are offered to industrial and business organization to meet their working capital requirements.
There are basically three types of loans issued to the borrowers. First one is secured loans, the second being unsecured loans and the third one is demand loans. Secured loans are offered against collateral securities. They issue loans against pledging some movable or immovable assets. The interest rate is less for the secured loans.
Mortgage and housing loans are the examples of secured loans. These loans are called secured loans because the banks can take possession of the properties pledged if the borrower does not repay the loan. At the same time banks and financial intuitions are offering unsecured loans too to their valuable customers. The interest rate will be more for the unsecured loans. Credit card loans, bank over drafts, personal loans, and credit facilities are the examples of unsecured loans. If the borrower does not pay it would be difficult for the lenders to collect the amounts from the borrowers.
Demand loans on the other hand are short term loans. There may not be any fixed time of repayment. The demand loans can be both secured and unsecured. Loans are given to borrowers to make use of the funds and earn more money. The borrowers should grow with the money lent by the banks. The banks also would grow with the interest they earn from the loans. Both the borrower and the lender are benefited by loans, however those who struggle to make repayments may need to seek some form of debt consolidation and debt management advice.
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