A loan is a financial transaction in which one party (the lender) agrees to give another party (the borrower) a certain amount of money with the expectation of total repayment. The specific terms of a loan are often spelled out in the form of a promissory note or other contract. The lender can ask for interest payments in addition to the original amount of the loan (principal). The borrower must agree to the repayment terms, including the amount owed, interest rate and due dates. Some lenders can also assign financial penalties for missed or late payments.
Depending on the purpose of the loan there are different types of loans. For example you can get a mortgage
loan, car loan, home equity loan, student loan, payday loan, personal line of credit, etc
A loan can be secured or unsecured. A secured loan is a loan in which the borrower pledges some asset (
e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor
who gives the loan. The debt is thus secured against the collateral ? in the event that the borrower defaults,
the creditor takes possession of the asset used as collateral and may sell it to regain some or all of the amount
originally lent to the borrower, for example, foreclosure of a home. From the creditor's perspective this is a
category of debt in which a lender has been granted a portion of the bundle of rights to specified property.
If the sale of the collateral does not raise enough money to pay off the debt, the creditor can often obtain
a deficiency judgment against the borrower for the remaining amount. The opposite of secured debt/loan is
unsecured debt, which is not connected to any specific piece of property and instead the creditor may only
satisfy the debt against the borrower rather than the borrower's collateral and the borrower.
Unsecured loans on the other hand are not secured by an asset. Examples of such loans are lines of credit,
personal loans, credit cards and in most cases student loans.
When getting a loan always read your loan contract and make sure that you understand it.
You have to be aware of the real cost of the loan, which includes the interest you will
be paying, any fees associated with the loan. Make sure that you are aware of any conditions
which will change the terms of your loan (late payments, early repayments, etc.).