What is a Loan? aka a Financial Instrument

What is a Loan? Is the crazy question for today.

A loan is an financial instrument in which a lender loans money to a borrower.

The borrower must make monthly payments on the loan for a predetermined period of time.

And the loan will have a predetermined interest rate and other fees associated with it.

Loans are usually secured by some form of property, such as homes or cars.

Security is needed, because the lender has to bear the risk that the borrower may not pay the loan back.

Without security the lender would lose their money and their ability to re-lend.

At least with security, if the borrower defaults the lender can sell it and try to recoup their loss.

That is why the lender almost always requires some form of security.

What is a Loan type?

what is a loanMore about what is a loan type can be found on the following pages.

Here is a page about secured  loans, what they are and when they are used.

Secured loans are used mostly on larger loans that need collateral such as houses and automobiles.

Here is Another page that is about unsecured loans, what they are and when they are used.

Unsecured loans are usually smaller loans where collateral is not necessary.

Visit these two pages for an explanation of  the different types of loans in more detail.

There are many different types of loans for many different purposes.

Some loans require good credit and collateral.

And some loans only require a signature to get.

A loans interest rate, terms, fees, etc will depend any many different factors about you and your ability to repay.

Make sure you ask your lender lots of questions and have them explain the fees involved in getting a loan.

Hope I have helped answer your question What is a loan?


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