The borrower initially receives an amount of money from the lender, which they pay back, usually but not always in regular installments, to the lender. This service is generally provided at a cost, referred to as interest on the debt. A borrower may be subject to certain restrictions known as loan covenants under the terms of the loan.

Acting as a provider of loans is one of the principal tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is a typical source of funding. Bank loans and credit are one way to increase the money supply.

Legally, a loan is a contractual promise of a debtor to repay a sum of money in exchange for the promise of a creditor to give another sum of money.

Secured

A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan.

A mortgage loan is a very common type of debt instrument, used by many individuals to purchase housing. In this arrangement, the money is used to purchase the property. The financial institution, however, is given security — a lien on the title to the house — until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it.

In some instances, a loan taken out to purchase a new or used car may be secured by the car, in much the same way as a mortgage is secured by housing. The duration of the loan period is considerably shorter — often corresponding to the useful life of the car. There are two types of auto loans, direct and indirect. A direct auto loan is where a bank gives the loan directly to a consumer. An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the consumer.

A type of loan especially used in limited partnership agreements is the recourse note.

A stock hedge loan is a special type of securities lending whereby the stock of a borrower is hedged by the lender against loss, using options or other hedging strategies to reduce lender risk.

Unsecured

Unsecured loans are monetary loans that are not secured against the borrowers assets. These may be available from financial institutions under many different guises or marketing packages:

    * credit card debt
    * personal loans
    * bank overdrafts
    * credit facilities or lines of credit
    * corporate bonds

 
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Loan is a written or oral agreement for a temporary transfer of a property (usually cash) from its owner (the lender) to a borrower who promises to return it according to the terms of the agreement, usually with interest for its use. If the loan is repayable on the demand of the lender, it is called a demand loan. If repayable in equal monthly payments, it is an installment loan. If repayable in lump sum on the loan's maturity (expiration) date, it is a time loan. Banks further classify their loans into other categories such as consumer, commercial, and industrial loans, construction and mortgage loans, and secured and unsecured loans. A written promise to repay the loan is called a promissory note.

A sum of money or other valuables or consideration which an individual, group or other legal entity borrows from another individual, group or legal entity (this latter often being a financial institution) with the condition that it be returned or repaid at a later date (sometimes with interest). Occasionally collateral is required to assure that the borrower repays his or her debt or returns the consideration thus loaned. Most loans require some sort of positive (or at least a lack of negative) credit to be established by the borrower first.

Money advanced to a borrower, to be repaid at a later date, usually with interest. Legally, a loan is a contract between a buyer (the borrower) and a seller (the lender), enforceable under the Uniform Commercial Code in most states. The terms and conditions for repayment of a loan, including the finance charge or interest rate, are specified in a loan agreement. A loan may be payable on demand (a Demand Loan), in equal monthly installments (an Installment Loan), or they may be good until further notice or due at maturity (a Time Loan).

There are various methods lenders use to categorize loans, both for internal control and for reporting lending activity to governmental agencies, for example, classification by maturity, industry, security, and type of borrower. Bank loans are normally classified by: (1) Commercial & Industrial Loans to business organizations; (2) interbank loans, which are mostly Federal Funds transactions, from one bank to another; (3) Loan Participations or loans to a single borrower shared by several banks; (4) real estate loans, which may be subdivided into construction loans and long-term Mortgage loans; and (5) loans to consumers, such as auto loans and other forms of consumer installment credit

A loan is a type of debt. All material things can be lent; this article, however, focuses exclusively on monetary loans. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.

 

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