Loans are practically debts and involve the redistribution of finances over time between a lender and a borrower. In case of a loan a person or borrower borrows a sum of money from a lender called the principal and is obligated to return either the same amount of money or the money in addition to a little interest.
Personal loans are generally taken for buying a car, a house, a factory or any other product that holds only one person responsible. Generally loans that are taken for multinational companies are not under the name of a single entity and therefore cannot be termed as a personal loan.
The repayment of loans involves paying a certain sum of money at regular intervals. If the borrower signs a contract, he is under additional pressure and restrictions known as loan covenants. One of the many tasks and perhaps the most important of the financial institutions is providing loans. Other institutions rely on the issuing of debt contracts which are termed as bonds as their source of funding.
There are four types of loans involved: secured, unsecured, demand, and subsidized :
A secured loan refers to a type of loan where the borrower pledges an asset like car or property as collateral.
Unsecured loans are credit card loans and bank overdrafts while demand loans are short term loans that do not have a fixed time for the loan repayment. The interest is floating and can vary according to the prime rate.
A subsidized loan is one where the interest is reduced by a hidden subsidy. Student loans are examples of this type of loans.
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