Loan is a form of debt offered by financial institutions such as banks that entails distributions of financial assets over time between the lender and the borrower. The borrower receives money known as principal from the lender and is expected to pay back within a specified period. The repayment is broken down into small portions known as installments. The installments are usually of the same amount until the whole amount is completely paid back. The money lent to the borrower is charged at a cost known as interest rate. The interest rate is the incentive for the lender to engage in the loan. Usually the transaction and agreement is out down on written format known as a contract which binds the financial transaction.
There are different types of loans available for the borrower. Depending on the need and financial situation of the borrower you can borrow money for different reasons. You may need the financial aid for starting up a business, settle previous debts, buy assets such as land and home, fund education, meet emergencies or to improve your lifestyle. For whatever reason you may need the loan, it is important to look through the many options available and the terms of the financial assistance before you sign the contract. There are types of loan such as secured and unsecured types. There are those that need an asset or guarantee known as collateral before you can be granted with the financial assistance. These act as security just in case you fail to repay the money with the interest on top of the principal within the agreed time in the contact. They are always auctioned out to settle the dues by the financial institutions or the lender. Some require referees who can represent you in case you fail to pay the loan within the specified period of time.
Loan can affect your credit history. Make sure you repay your loans well and keep a good credit score.