Loans

A loan is the where a person or entity borrows money from someone else with a requirement to repay it at a later date. There will usually be a rate of interest payable on top of the amount borrowed which rewards the lender for taking the risk of providing the money to the borrower, as there is always a chance that they may not be able to pay it all back.

Whilst any money or credit that is provided can technically be classed as a loan, it is usually a lump sum provided by a financial institution that is larger than the amount that could be taken out on a credit card, but not as much as a mortgage which is a large loan secured against a building such as a house, which can be re-possessed by the lender if repayments are not kept up.

Loans typically fall into two classes: a secured loan and an unsecured loan. A secured loan is a loan for a specific piece of equipment which can then be seized by the lender if repayments are not made. Lenders often feel safer with this type of loan as it is easier to seize the particular asset in the event of default. An unsecured loan is not tied to any equipment or item, and the rate of interest demanded by lenders is usually higher than that of a secured loan.

In recent years there has been an enormous surge in social or peer-to-peer lending where individuals or companies with excess cash are matched with potential borrowers, cutting out the large financial institution.

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