What You Should Know About Loans

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Access to credit plays a pertinent role of enabling individuals or entities to solve their vital financial needs. A borrower can take out a loan that is repayable within an agreed time frame and rate of interest.

The amount borrowed may be paid back in full at once or the borrower can elect to repay through weekly or monthly instalments until the full amount plus interest is cleared. The interest charged by the lender is therefore the actual cost of the loan amount advanced.

And to make the loan transaction binding, a contract is signed between the two parties which could serve as a basis of legal action in the event of any disputes or failure to meet stipulated obligations by the borrower.

Mortgage loans are a basic form of funding that is advanced to an individual for the purposes of purchasing a house. The lender is covered from any losses by the fact that the property involved is also regarded as security or collateral, in case of failure to pay by the borrower. Such loans are normally offered by banks, and have a mandatory tenure for the loan repayment.

Applicable interests are charged on the mortgage’s outstanding balance and can be fixed or adjustable (floating) and thus affected by the interest rate determinations of the central bank.

A pre-settlement loan relates to a loan advanced in a lawsuit, however not all cases qualify for this type of a loan. Some unscrupulous lenders employ draconian tactics aimed at abusing the rights of the borrowers, either by over-charging on interest payable or ignoring the legal recourse channels in the event of default.

Loan sharks in some developing countries are quick to institute unlawful seizure of defaulting borrowers belongings, due to lack of knowledge on legal credit procedures on the part of some borrowers. Loans advanced for the purposes of buying assets like vehicles, also use the same items as security or collateral, in case of default.

On the other hand, a stock hedge loan is an arrangement which entails a lender assisting the borrower by hedging their stock against loss through hedging mechanisms such as options. Credit card debt, bank overdrafts, etc, fall under the unsecured loans category, and differ with the secured loans in that the lender attaches some form of security to the loan advancements.

They are offered to individuals or organizations with a good credit record, considered to be less risky. Short term loans are advanced without a specified date (fixed) for repayment, in such circumstances the interest applicable is dependent on the prime lending rate (floating interest rate)


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