Loans
A loan is simply an agreement to pay back an amount of money that has been borrowed, along with any interest, and sometimes finance charges or application fees. Loans can be as simple as someone you work with loaning you $20 and you paying them back $20 on payday, or as complicated as a bank lending you enough to start your own business, and you pay the bank back within a specified length of time.
Usually, when we see the word “loan“, we’re talking about an amount that is most likely over $100 dollars, and is obtained through a lending institution of some sort. (Banks, credit unions, and independent loan companies are examples of lending institutions).
There are different types of loans; however, most loans fall within one of two categories: (secured and unsecured loans), and personal loans.
Unsecured personal loans are often referred to as “signature” loans. The lending institution does not require you to “put up” some form of “collateral”, such as a bank or money market account, or some form of personal property (a car, home or other real estate, or something else of value).
Some financial institutions may ask you to have someone co-sign with you on an unsecured loan, however. In this way, should you be unable to repay the loan, the co-signer would be responsible for the payments.
Secured loans are those that require you to provide some sort of collateral, such as that mentioned in an earlier paragraph. The most common or familiar type of secured loan is an automobile loan, because the lending institution maintains control of the ownership papers (the title, in other words), until the loan is paid in full. If the loan is not repaid, or payments become severely delinquent, the lending institution simply takes possession of the vehicle.
Another example of a secured loan is the very common payday loan. You may think that this type of loan would be considered an unsecured signature loan, because, after all, you’re giving them a post-dated check, which has your signature on it. However, when you think about it, you are actually securing this loan with funds that will be (or should be) available in your checking account on the due date. If for some reason the money is not in your checking account when the check is presented to the bank, you will be “dinged” for the original loan amount, plus any interest, plus any insufficient fund fees that the loan company and/or your bank charges. There are usually better options for obtaining a personal loan than a “payday” loan.
A business loan may be acquired in order to start a business, or in order to expand or support an existing business. These are usually the most complicated types of loans. For this reason, anyone who takes out a business loan may want to have an attorney to look over the terms and conditions of the loan agreement. This is for the borrower’s protection as well as the lender’s.
The ability to pay back a business loan is, of course, dependent on the success of the business. The loan will still have to be repaid, even if the business fails. This is another reason why an attorney can be an asset. He or she can advise you on how much to borrow, and which repayment terms will be the best for your business.
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Tags: automobile loans, loan, Loans, payday loans, personal loans, small business loans
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