Loans

A loan is a debt extended to you by another party (organization or individual) at an interest rate, and evidenced by a promissory or contract agreement which specifies the principal amount, interest rate, date of repayment plus other terms. A loan can also be any material asset and not just money.

The sum of money you initially receive is called the principal, and you are obliged to repay an equal amount of money to the lender at a later time. In most cases depending on the size of the loan and the party from which you access the loan, you may be required to pay back in regular equal installments. The cost of the loan also called interest on the debt is lumped up together with repayments on principal in the regular repayments.

You can access a loan from an individual, colleague or relative or a legal financial institution authorized  to extend credit for profit to its customers. Such a loan could be secured or non-secured depending the arrangement and size of the loan.

Secured Loans 

To access a secured loan you need some kind of collateral normally an asset; property, car, land, house, etc. A mortgage is one example of a secured loan by which you can buy housing. In this arrangement, the money is used to buy a house. The bank, however, is given security — a lien on the title to the house — until the debt is fully discharged. If you default on the loan, the bank has the legal right to repossess the house and sell it, to recover what you owe to them.

In similar circumstances, you can take loan to buy a car and secure the loan in much the same way as a mortgage is secured by housing. The duration of a car loan is considerably shorter — 36 to 72 months normally. 

Unsecured Loans

No collateral or security is required to access this category of loans. They are offered by financial institutions as marketing packages. Some examples include; credit card debt, salary loans, corporate bonds, bank overdrafts, lines of credit, etc. The interest rates chargeable on these loans may be somewhat higher and not regulated by law depending on the lender and borrower. Interest rates on unsecured loans are always higher than for secured loans, because an unsecured lender's options for recourse against the borrower in the event of default are severely limited. An unsecured lender must sue the borrower, obtain a money judgment for breach of contract, and then pursue execution of the judgment against the borrower's unencumbered assets (that is, the ones not already pledged to secured lenders). In insolvency proceedings, secured lenders traditionally have priority over unsecured lenders when a court divides up the borrower's assets. Thus, a higher interest rate reflects the additional risk that in the event of insolvency, the debt may be irrecoverable.

Demand Loans

Demand loans are short-term loans that do not have fixed repayment dates and carry a floating interest (APR & VPR) rate which varies according to the prime rate published regularly by the wall street Journal in the US. In the UK it is known as the LIBOR or London Inter Bank Offered Rate. Demand loans can be "called" for repayment by the lending institution at any time. 

Concessional Loans

A concessional loan is a soft loan granted on more generous terms than market loan terms either through below-market interest rates, by grace periods or a combination of both. Such loans may be made by foreign governments to poor countries or may be offered to employees of lending institutions as an employee benefit.

Subsidized Loans

A subsidized loan is offered at a reduced interest rate. College loans in the United States are an example in which no interest accrues for as long as the student remains enrolled in education.