When money is lent to a person or organization, it is said to be a loan; normally finalized by a legal document as it is a binding arrangement between the two. Lending money has been around since it was invented although people and other goods or services have been lent to others for longer but as the majority of these are for money; this is what this article is about. Unlike most other types of loan, those involving cash will gradually be paid back over a period of time previously arranged; the usual repayment method is based around monthly installments but this period can be longer. The debt is repaid but an interest charge is added for the service being provided and the method by which the lender is compensated. For instance, some debts repay the interest first and then once this is cleared, the borrowed sum is gradually repaid.

Others will repay the debt in equal installment with the interest as part of this amount. Although this is the main function of all financial institutions, they do have other functions as well. For both companies and individuals, arranging a loan is a way to increase their cash flow for a regular monthly outlay.

many other cash raising methods exist but this is the simplest. Long term financial arrangements designed for individuals and companies to buy real estate is called a mortgage but it can only be used for this purpose. In this instance, the lender is given security on the money advanced in the form of the title deeds of the house until the debt is repaid in full. This security means that defaulting on the loan may leave the lender with no alternative but to repossess the property; whilst they can reclaim money owed immediately this way, they may also decide to retain the property until a later date.

There is nothing to stop any lender asking for the loan to be secured and this can happen when a car is bought using this method; if the person using the money to buy a car defaulted on the money used to purchase it, the car would be sold to repay the debt. Car loans are generally much shorter as the useful life of a car is correspondingly reduced; where cars are concerned, this term will only last a handful of years. The average person may have a number of unsecured loans or credit facilities and not even realize it; if you have an overdraft or credit cards for example, this is exactly what these arrangements are.

Typically, interest rates on credit cards or store cards will be the highest but all unsecured credit rates will of course vary from one lender to the next. Abuse in the granting of money is known as predatory lending; it usually involves providing cash in order to put the borrower in a position where one can gain advantage over them. This type of lending also takes place with credit card companies around the world who issue credit cards with high charges which take a disproportionate amount of time to pay off; even small balances, just to retain a customer. You would be wise to be wary of financial arrangements that seem to good to be true because they probably are.

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