A Brief Introduction to Loans

Loan is a financial term, which involves two necessary parties – the lender and the borrower – in a financial process. When the lending of money proceeds between the two parties and there is a signed promissory note that can confirm it, a loan comes into legal effect.

Both the lender and the borrower can be an individual, organization or entity. The one who borrows money must pay off his debt in time with extra interest. Of course, the lender must clearly denounce the interest rate at the very beginning, and the borrower should take it into consideration before he applies for the loan.

The certain amount of money the borrower gets is principal. He has to pay it back in time together with the interest. The time when he repays the money relates to what kind of loan it is. As for some sorts of loans, you must pay them off in a lump sum at maturity. While it comes to others, you can repay them several times in some regular periods. Whether you should pay off the principal and interest together depends on the type of loan you use. Besides, the interest rate varies due to the variation of loans.

Types of Loans

Secured Loan

In a secured loan, the lender claims some properties from the borrower as collaterals. The borrower must provide legal papers to prove that the asset he offers belongs to him legitimately. If he fails to repay the debt, the lender will hold the collateral as his own. There won’t be any chance for the borrower to get his property back from the lender.

Unsecured Loan

Unsecured loans have nothing to do with properties. Instead, it connects closely with one’s credit rating. If the debtor’s credit rating is good, then he is eligible to apply for a large amount of money. Nevertheless, with an indecent rating, only few creditors will lend the money. Moreover, the amount of money that you receive is not necessarily satisfying.

Demand Loan

As for demand loans, everything is flexible but still there are certain rules that both parties must obey. A demand loan is either secured or unsecured. It’s a kind of short-term loan. The day when the borrower must pay off the debt is not fixed. The lending institution may ask you to pay the loan off at any time. But you also can repay it in advance if you can afford it. What’s more, the interest rate is not always the same. It changes in compliance with the prime lending rate.

Subsidized Loan

In a subsidized loan, the lending institution offers a subsidy. It may give you an interest deduction for no reason. But sometimes the subsidy asks for certain prerequisites.

Concessional Loan

To some extent, concessional loans are similar to subsidized loans. Yet they are actually more generous. A concessional loan brings its borrower a low interest rate and a grace period. The lenders are usually foreign governments that provides benefits for developing countries and lending institutions who offers convenience for their employees.

Student Loan

The aim of student loans is to help students with their tuition and living expenses in college. Generally speaking, there are two types of student loans – private student loans and federally-guaranteed loans. Normally the interest rate of a private student loan is higher than federally-sponsored ones. Most student loans are supported by the federal government, in other word, the majority of student loans are subsidized loans. These loans, such as Stanford loan, Perkins loan and PLUS loan, really relieve students from the financial burden of higher education.

Installment Loan

An installment loan is a loan repaid over time by regular payments of principal and interest. If it is an unsecured installment loan, the term is often shorter. Typical installment loans include student loans, mortgage loans, and car loans.

Online Loan

With the rapid development of our society, banks are not the only places that you can apply a loan from. There are many online lenders. You can fill the application form of mortgage, personal loans, equity loans and student loans online.

Payday Loan

A payday loan is a short-term loan. The name carries the meaning that the borrower should repay the loan on his payday. The amount of money involved is small, but the interest rate is very high.

401k Loan

401k plan is an American retirement plan. Under this plan, the employer withdraws some of the employee’s salary before taxation and saves it into the employee’s pension account. A 401k loan gets money from your account. Though it’s’ your own pension account, you have to repay it, or you will lose a secured retired life.

Mortgage Loan

A mortgage loan, also referred to as mortgage, is a secured loan with borrower’s property as collateral. The two basic types of mortgage loans are the fixed rate mortgage (FRM) and adjustable-rate mortgage (ARM). The borrowers of this kind of loan are always purchasers of real property and existing property owners.

Car Title Loan

A car title loan is another secured loan. In this loan, the lender places a lien on the borrower’s car title. Therefore, the car serves as a collateral. The borrower’s default of the payment will gives the lender every right to deal with the car.


Keywords: loan; car titles loan; loan student; ondeck loans