Info-Authority: Loans

A financial loan typically refers to monetary debt, although it is possible to lend any material possession. Aside from sales, the lending of money is the most frequent type of commercial transaction that occurs in a modern economy. A loan is defined by a lender granting temporary use of a sum of money to a borrower, who assumes the debt of having to return these funds back to the lender, or creditor, as they are often called. This service is usually provided at a cost to the borrower, who must repay the money that was borrowed over a fixed term, in addition to the interest on the loan, or debt, that was incurred.

Types of Loans

Types of loans include mortgages, school loans, credit card debt, car loans, lines of credit, promissory notes, and bonds. Loans are usually provided with terms outlined by written contract, but may also be acknowledged by an oral promise to repay. Presently, banks and finance companies are the most common providers of loans; historically, merchants have provided this service.

In some situations, such as in car loans and mortgages, collateral is involved. The bank or creditor providing the financing will hold the title to the vehicle or property until the loan is repaid in full. If the borrower defaults on his or her loan, this allows the lender to repossess the vehicle or home and sell it in order to recover the money. Pawnbrokers are another business that issues loans based on secured collateral.

Interest Rates

Interest rates are charged on loans to repay the lender for not spending their money themselves and for assuming the risk that a borrower may go bankrupt, abscond, or default on a loan. It also compensates the lender for inflation and lost liquidity of capital. Interest rates are commonly expressed as a yearly percentage that the borrower will be charged on the remaining balance of their loan.

Obtaining a Loan

Today, a borrower's credit score is an important tool, or hindrance, to obtaining a loan. A credit score is a statistically calculated number based on an individual's credit report. A credit score provides lenders with a representation of how creditworthy, and likely to satisfactorily repay a debt, a borrower may be. Lenders such as banks and credit card companies use credit scores to assess the risk of lending to a particular borrower. Borrowers with higher rankings will be rewarded by being approved for lower interest loans, as they are viewed as a safer investment. A poor credit score may result in higher interest rates on loans, or an inability to be approved for loans.

Credit scoring and technological advances have made loan processing and approval easier and faster than ever before. In the past, long hours were spent shopping for loans at banks, savings and loans, and credit unions. A borrower was also required to fill out and sign many lengthy forms. Today's computer based processing allows borrowers to find and apply for loan products online. Borrowers are now able to be pre-approved for a loan, as well as know how much money they can borrow at what interest rate before they even go to look at a car or house.

By Doug Vanisky




	Loans A financial loan typically refers to monetary debt, although it is possible to lend any material possession. Aside from sales, the lending of money is the most frequent type of commercial transaction that occurs in a modern economy. A loan is defined by a lender granting temporary use of a sum of money to a borrower, who assumes the debt of having to return these funds back to the lender, or creditor, as they are often called. This service is usually provided at a cost to the borrower, who must repay the money that was borrowed over a fixed term, in addition to the interest on the loan, or debt, that was incurred. Types of Loans Types of loans include mortgages, school loans, credit card debt, car loans, lines of credit, promissory notes, and bonds. Loans are usually provided with terms outlined by written contract, but may also be acknowledged by an oral promise to repay. Presently, banks and finance companies are the most common providers of loans; historically, merchants have provided this service. In some situations, such as in car loans and mortgages, collateral is involved. The bank or creditor providing the financing will hold the title to the vehicle or property until the loan is repaid in full. If the borrower defaults on his or her loan, this allows the lender to repossess the vehicle or home and sell it in order to recover the money. Pawnbrokers are another business that issues loans based on secured collateral. Interest Rates Interest rates are charged on loans to repay the lender for not spending their money themselves and for assuming the risk that a borrower may go bankrupt, abscond, or default on a loan. It also compensates the lender for inflation and lost liquidity of capital. Interest rates are commonly expressed as a yearly percentage that the borrower will be charged on the remaining balance of their loan. Obtaining a Loan Today, a borrower's credit score is an important tool, or hindrance, to obtaining a loan. A credit score is a statistically calculated number based on an individual's credit report. A credit score provides lenders with a representation of how creditworthy, and likely to satisfactorily repay a debt, a borrower may be. Lenders such as banks and credit card companies use credit scores to assess the risk of lending to a particular borrower. Borrowers with higher rankings will be rewarded by being approved for lower interest loans, as they are viewed as a safer investment. A poor credit score may result in higher interest rates on loans, or an inability to be approved for loans. Credit scoring and technological advances have made loan processing and approval easier and faster than ever before. In the past, long hours were spent shopping for loans at banks, savings and loans, and credit unions. A borrower was also required to fill out and sign many lengthy forms. Today's computer based processing allows borrowers to find and apply for loan products online. Borrowers are now able to be pre-approved for a loan, as well as know how much money they can borrow at what interest rate before they even go to look at a car or house. By Doug Vanisky Related Links: Wikipedia - Loan Wikipedia definition of loan.