WHAT IS LOAN ??
Ans. : A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the
borrower.
In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an
equal amount of money to the lender at a later time. Typically, the money is paid back in regular installments, or partial repayments; in an annuity,
each installment is the same amount. The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the
lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under
additional restrictions known as loan covenants. Although this article focuses on monetary loans, in practice any material object might be lent.
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.
TYPES OF LOANS :
- Secured
- UnSecured
ok, here is the explanation, abot what is securd loan and what is unsecured loan :
Secured Loans :
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.
A pre-settlement loan is a non-recourse debt, this is when a monetary loan is given based on the merit and awardable amount in a lawsuit case. Only
certain types of lawsuit cases are eligible for a pre-settlement loan.This is considered a secured non-recourse debt due to the fact if the case reaches
a verdict in favor of the defendant the loan is forgiven.
UnSecured Loans :
Unsecured loans are monetary loans that are not secured against the borrower's 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
Loan Monthly Payment Calculator :
we can calculate the monthly payment for a fixed interest rate loan using the formula
M = P [ i(1 + i)n ] / [ (1 + i)n - 1]
Where
M is the monthly payment
P is the loan principal
i is the monhtly interest rate (annual interest rate divided by 12)
n is the number of monthly payments (years of loan multiplied by 12)
Worksheet :
This is designed to be easy for anyone with a calculator to do. No steps are skipped. Do the following calculations step by step with paper and a
calculator. (Excel works too!)
P = principal, the amount of money borrowed (note some loans charge fees upgront, increasing P)
n = the years of loan * 12
i = annual fixed interest rate divided by 12
