Bank Loans
A loan is simply a kind of debt. The borrower receives money from the lender at a cost, which is called the interest. The money lent will have to be paid back in full plus the interest, in accordance to loan covenants—that is, the terms of the loan as stated in the contract signed by both the borrower and the lender.
Facade of the secessionist former people's loan bank (built in 1907) in ljubljana, slovenia
Bank loans are a form of credit to the borrowers, and, taken on a broad scale, become a source of money supply for the investing or consuming public. Terms of loans vary among different countries, cultures, governments, industries and companies. However, there is usually a central bank in each country that is given regulatory powers to make lending practices uniform, consistent and within limits allowed by law.
Federal Home Loan Bank Board Building
Basically, loans are either secured or unsecured. Secured loans are the type whereby the borrower pledges an asset as collateral for the loan. The collateral (usually property such as a house, lot, or car) serves as security for the lender in case the borrower defaults on payments. A common example of a secured loan is the mortgage loan, which is generally used by individuals or families to purchase housing. The money being transferred from lender to borrower is committed to buying the house and lot (usually both, together, rather than separately), which, in turn, become the security for the loan. In the event the borrower fails to make payments after being given every opportunity to do so, then the lender can lawfully take possession of the house and lot purchased with the loan. The bank can then sell the property in order to recover the amount it lent. Even if the borrower is faithful in making periodic payments, the lending bank will still hold a lien on the title to the house and lot until the mortgage is fully paid.
Landed Banking & Loan Co.
A car loan, which is another example of secured loan, has a shorter loan period but also uses the car as security for the loan. The duration usually corresponds to the useful life of the car. Typically there are two kinds of car loans: (a) direct, where the bank issues the loan to the car buyer directly, and (b) indirect, where the bank courses the money through the car dealer as an intermediary.
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Unsecured loans are not secured against assets of the borrower. This kind of bank loan takes the form of credit card debt, line of credit, bank overdraft, or personal loan.