A loan is a type of debt Debt is that which is owed; usually referencing assets owed, but the term can also cover moral obligations and other interactions not requiring money. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned. Some companies and corporations use debt as a part of their overall. Like all debt instruments, a loan entails the redistribution of financial assets In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Simplistically stated, assets represent ownership of value that can be converted into cash . The balance sheet of a firm over time, between the lender and the borrower.

In a loan, the borrower initially receives or borrows an amount of money Money is any object that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally, a standard of deferred payment, 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 The term annuity is used in finance theory to refer to any terminating stream of fixed payments over a specified period of time. This usage is most commonly seen in discussions of finance, usually in connection with the valuation of the stream of payments, taking into account time value of money concepts such as interest rate and future value, each installment is the same amount. The loan is generally provided at a cost, referred to as interest Interest is a fee paid on borrowed assets. It is the price paid for the use of borrowed money, or, money earned by deposited funds. Assets that are sometimes lent with interest include money, shares, consumer goods through hire purchase, major assets such as aircraft, and even entire factories in finance lease arrangements. The interest is on the debt Debt is that which is owed; usually referencing assets owed, but the term can also cover moral obligations and other interactions not requiring money. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned. Some companies and corporations use debt as a part of their overall, 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 In law, a contract is an agreement between two or more parties which, if it contains the elements of a valid legal agreement, is enforceable by law or by binding arbitration. A legally enforceable contract is an exchange of promises with specific legal remedies for breach. These can include compensatory remedy, whereby the defaulting party is, which can also place the borrower under additional restrictions known as loan covenants A loan covenant is a condition in a commercial loan or bond issue that requires the borrower to fulfill certain conditions or which forbids the borrower from undertaking certain actions, or which possibly restricts certain activities to circumstances when other conditions are met. 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 In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries. Most financial institutions are highly regulated by government. For other institutions, issuing of debt Debt is that which is owed; usually referencing assets owed, but the term can also cover moral obligations and other interactions not requiring money. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned. Some companies and corporations use debt as a part of their overall contracts such as bonds In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest and/or to repay the principal at a later date, termed maturity. A bond is a formal contract to repay borrowed money with interest at fixed intervals is a typical source of funding.

Types of loans

Secured

A secured loan A secured loan is a loan in which the borrower pledges some asset as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral — in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral In lending agreements, collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan. The collateral serves as protection for a lender against a borrower's default - that is, any borrower failing to pay the principal and interest under the terms of a loan obligation. If a borrower does default on a loan , that for the loan.

A subsidized loan is a loan that will not gain interest before you begin to pay it. It is known to be used at multiple colleges.

A unsubsidized loan is a loan that gains interest the day of disbursement.

A mortgage loan A mortgage loan is a loan secured by real property through the use of a document which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan is a very common type of debt instrument, used by many individuals to purchase housing A house is a home, shelter, building or structure that is a dwelling or place for habitation by human beings. The term includes many kinds of dwellings ranging from rudimentary huts of nomadic tribes to free standing individual structures. In some contexts, "house" may mean the same as dwelling, residence, home, abode, lodging,. In this arrangement, the money is used to purchase the property. The financial institution, however, is given security — a lien In law, a lien is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. The owner of the property, who grants the lien, is referred to as the lienor and the person who has the benefit of the lien is referred to as the lienee on the title to the house — until the mortgage is paid off in full. If the borrower defaults In finance, default occurs when a debtor has not met his or her legal obligations according to the debt contract, e.g. has not made a scheduled payment, or has violated a loan covenant of the debt contract. A default is the failure to pay back a loan. Default may occur if the debtor is either unwilling or unable to pay their debt. This can occur 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 A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners , there are one or more limited partners (LPs). It is a partnership in which only one partner is required to be a general partner agreements is the recourse note Nonrecourse debt or a nonrecourse loan is a secured loan that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender's recovery is limited to the collateral. If the property is insufficient to cover the.

A stock hedge loan is a special type of securities lending In finance, securities lending or stock lending refers to the lending of securities by one party to another. The terms of the loan will be governed by a "Securities Lending Agreement", which requires that the borrower provides the lender with collateral, in the form of cash, government securities, or a Letter of Credit of value equal to whereby the stock of a borrower is hedged by the lender against loss, using options or other hedging In finance, a hedge is a position established in one market in an attempt to offset exposure to price fluctuations in some opposite position in another market with the goal of minimizing one's exposure to unwanted risk. There are many specific financial vehicles to accomplish this, including insurance policies, forward contracts, swaps, options, strategies to reduce lender risk.^{[citation needed]}

A pre-settlement loan is a non-recourse debt Nonrecourse debt or a nonrecourse loan is a secured loan that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender's recovery is limited to the collateral. If the property is insufficient to cover the, 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.^{[citation needed]} This is considered a secured non-recourse debt due to the fact that if the case reaches a verdict in favor of the defendant the loan is forgiven.

Unsecured

Unsecured loans An unsecured loan is a loan that is not backed by collateral. Also known as a signature loan or personal loan 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 A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services. The issuer of the card grants a line of credit to the consumer from which the user can borrow money for payment to a merchant or as a cash advance to the debt
• personal loans
• bank Banking is generally a highly regulated industry, and government restrictions on financial activities by banks have varied over time and location. The current set of global bank capital standards are called Basel II. In some countries such as Germany, banks have historically owned major stakes in industrial corporations while in other countries overdrafts An overdraft occurs when withdrawals from a bank account exceed the available balance. In this situation a person is said to be "overdrawn"
• credit facilities or lines of credit
• corporate bonds A corporate bond is a bond issued by a corporation. It is a bond that a corporation issues to raise money in order to expand its business. The term is usually applied to longer-term debt instruments, generally with a maturity date falling at least a year after their issue date (may be secured or unsecured)

The interest rates An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for deferring the use of funds and instead lending it to applicable to these different forms may vary depending on the lender and the borrower. These may or may not be regulated by law. In the United Kingdom, when applied to individuals, these may come under the Consumer Credit Act 1974 The Consumer Credit Act 1974 was an Act of the Parliament of the United Kingdom that significantly reformed the law relating to consumer credit within the United Kingdom.

Demand

Demand loans are short term loans that are atypical in that they do not have fixed dates for repayment and carry a floating interest rate which varies according to the prime rate. They can be "called" for repayment by the lending institution at any time. Demand loans may be unsecured or secured.^[1]

Target markets

Personal or commercial

Loans can also be subcategorized according to whether the debtor is an individual person (consumer) or a business. Common personal loans include mortgage loans A mortgage loan is a loan secured by real property through the use of a document which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan, car loans, home equity lines of credit, credit cards A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services. The issuer of the card grants a line of credit to the consumer from which the user can borrow money for payment to a merchant or as a cash advance to the, installment loans and payday loans. The credit score A credit score is a numerical expression based on a statistical analysis of a person's credit files, to represent the creditworthiness of that person. A credit score is primarily based on credit report information, typically sourced from credit bureaus of the borrower is a major component in and underwriting and interest rates (APR) of these loans. The monthly payments of personal loans can be decreased by selecting longer payment terms, but overall interest paid increases as well. For car loans in the U.S., the average term was about 60 months in 2009.^[2]

Loans to businesses are similar to the above, but also include commercial mortgages A commercial mortgage is similar to a residential mortgage, except the collateral is a commercial building or other business real estate, not residential property. In addition, commercial mortgages are typically taken on by businesses instead of individual borrowers. The borrower may be a partnership, incorporated business, or limited company, so and corporate bonds A corporate bond is a bond issued by a corporation. It is a bond that a corporation issues to raise money in order to expand its business. The term is usually applied to longer-term debt instruments, generally with a maturity date falling at least a year after their issue date. Underwriting is not based upon credit score but rather credit rating A credit rating estimates the credit worthiness of an individual, corporation, or even a country. It is an evaluation made by credit bureaus of a borrower’s overall credit history. A credit rating is also known as an evaluation of a potential borrower's ability to repay debt, prepared by a credit bureau at the request of the lender . Credit.

Loan payment

The most typical loan payment type is the fully amortizing payment in which each monthly rate has the same value overtime.^[3]

The fixed monthly payment P for a loan of L for n months and a monthly interest rate c is: ^[4]

Abuses in lending

Predatory lending Predatory lending is a pejorative term used to describe unfair, deceptive, or fraudulent practices of some lenders during the loan origination process. While there are no legal definitions in the United States for predatory lending, an audit report on predatory lending from the office of inspector general of the FDIC broadly defines predatory is one form of abuse in the granting of loans. It usually involves granting a loan in order to put the borrower in a position that one can gain advantage over him or her. Where the moneylender is not authorized, they could be considered a loan shark A loan shark is a person or body that offers unsecured loans at high interest rates to individuals, often enforcing repayment by blackmail or threats of violence.

Usury Usury originally meant the charging of interest on loans. This included charging a fee for the use of money, such as at a bureau de change. After interest became acceptable, usury came to mean the interest above the rate allowed by law. In common usage today, the word means the charging of unreasonable or relatively high rates of interest. The is a different form of abuse, where the lender charges excessive interest. In different time periods and cultures the acceptable interest rate has varied, from no interest at all to unlimited interest rates. Credit card companies in some countries have been accused by consumer organisations of lending at usurious interest rates and making money out of frivolous "extra charges".^[5]

Abuses can also take place in the form of the customer abusing the lender by not repaying the loan or with an intent to defraud the lender.

United States taxes

Most of the basic rules governing how loans are handled for tax purposes in the United States are uncodified by both Congress (the Internal Revenue Code) and the Treasury Department (Treasury Regulations — another set of rules that interpret the Internal Revenue Code).^[6] Yet such rules are universally accepted.^[7]

1. A loan is not gross income to the borrower.^[8] Since the borrower has the obligation to repay the loan, the borrower has no accession to wealth.^[9]

2. The lender may not deduct the amount of the loan.^[10] The rationale here is that one asset (the cash) has been converted into a different asset (a promise of repayment).^[11] Deductions are not typically available when an outlay serves to create a new or different asset.^[12]

3. The amount paid to satisfy the loan obligation is not deductible by the borrower.^[13]

4. Repayment of the loan is not gross income to the lender.^[14] In effect, the promise of repayment is converted back to cash, with no accession to wealth by the lender.^[15]

5. Interest paid to the lender is included in the lender’s gross income.^[16] Interest paid represents compensation for the use of the lender’s money or property and thus represents profit or an accession to wealth to the lender.^[17] Interest income can be attributed to lenders even if the lender doesn’t charge a minimum amount of interest.^[18]

6. Interest paid to the lender may be deductible by the borrower.^[19] In general, interest paid in connection with the borrower’s business activity is deductible, while interest paid on personal loans are not deductible.^[20] The major exception here is interest paid on a home mortgage.^[21]

Income from discharge of indebtedness

Although a loan does not start out as income to the borrower, it becomes income to the borrower if the borrower is discharged of indebtedness. ^[22] Thus, if a debt is discharged, then the borrower essentially has received income equal to the amount of the indebtedness. The Internal Revenue Code The Internal Revenue Code is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes and statutory excise taxes. The Internal Revenue Code is published as Title 26 of the United States Code (USC), and lists “Income from Discharge of Indebtedness” in Section 62(a)(12) as a source of gross income Gross income is commonly defined as the amount of a company's or a person's income before all deductions or any taxpayer’s income, except that which is specifically excluded by the Internal Revenue Code, before taking deductions or taxes into account. For a business, this amount is pre-tax net sales less cost of sales. Section 61 of the Internal.

Example: X owes Y $50,000. If Y discharges the indebtedness, then X no longer owes Y $50,000. For purposes of calculating income, this should be treated the same way as if Y gave X $50,000.

For a more detailed description of the “discharge of indebtedness”, look at Section 108 (Cancellation of Debt (COD) Income Taxpayers in the United States may have tax consequences when debt is cancelled. This is commonly known as COD Income. According to the Internal Revenue Code, the discharge of indebtedness must be included in a taxpayer's gross income. There are exceptions to this rule, however, so a careful examination of one's COD income is important to) of the Internal Revenue Code The Internal Revenue Code is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes and statutory excise taxes. The Internal Revenue Code is published as Title 26 of the United States Code (USC), and.^[23]

See also

• Finance Finance is the science of funds management. The general areas of finance are business finance, personal finance, and public finance. Finance includes saving money and often includes lending money. The field of finance deals with the concepts of time, money, and risk and how they are interrelated. It also deals with how money is spent and budgeted, Personal finance Personal finance is the application of the principles of finance to the monetary decisions of an individual or family unit. It addresses the ways in which individuals or families obtain, budget, save, and spend monetary resources over time, taking into account various financial risks and future life events. Components of personal finance might, Settlement (finance) Settlement is the process whereby securities or interests in securities are delivered, usually against payment, to fulfill contractual obligations, such as those arising under securities trades
• Debt Debt is that which is owed; usually referencing assets owed, but the term can also cover moral obligations and other interactions not requiring money. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned. Some companies and corporations use debt as a part of their overall, Consumer debt Consumer debt is consumer credit which is outstanding. In macroeconomic terms, it is debt which is used to fund consumption rather than investment, Debt consolidation Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan, Government debt
• Bank, Fractional-reserve banking, Building society
• Annual percentage rate (a.k.a. Effective annual rate)
• Default (finance)
• Interest-only loan, Negative amortization, PIK loan
• FAFSA
• Federal student loan consolidation
• Federal Perkins Loan
• George D. Sax and the Exchange National Bank of Chicago - Innovation of instant loans
• Loan guarantee
• Loan sale
• Payday loan
• Refund Anticipation Loan
• Stafford loan
• Student loan
• Syndicated loan
• Title loan
• Student loan default

References

1. ^ "Getting Started in Small Business". Canadian Bankers Association. http://www.cba.ca/en/viewpub.asp?fl=3&sl=89&tl=90&docid=40&pg=8.
2. ^ Bird C. Car Loans: How Long Should They Be?. Cars.com.
3. ^ Guttentag, Jack (October 6, 2007). "The Math Behind Your Home Loan". The Washington Post. http://www.washingtonpost.com/wp-dyn/content/article/2007/10/05/AR2007100501165.html. Retrieved May 11, 2010.
4. ^ http://www.mtgprofessor.com/formulas.htm
5. ^ Credit card holders pay Rs 6,000 cr 'extra' May 3, 2007
6. ^ Samuel A. Donaldson, Federal Income Taxation of Individuals: Cases, Problems and Materials, 2nd Ed. 111 (2007).
7. ^ Id.
8. ^ Id.
9. ^ Id. See Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955)(giving the three-prong standard for what is "income" for tax purposes: (1) accession to wealth, (2) clearly realized, (3) over which the taxpayer has complete dominion).
10. ^ Donaldson, at 111.
11. ^ Id.
12. ^ Id.
13. ^ Id.
14. ^ Id.
15. ^ Id.
16. ^ Id.; 26 U.S.C. 61(a)(4)(2007).
17. ^ Id.
18. ^ Id. at 112.
19. ^ Id.
20. ^ Id.
21. ^ Id.
22. ^ Id.; 26 U.S.C. 61(a)(12)(2007).
23. ^ Id.; 26 U.S.C. 108(2007).

Categories: Loans

See Also:

• Loan
• Loan
• Loans
• Loan: Dictionary
• Loans: Dictionary

What Links Here:

Recently Viewed Pages:

• Search Terms
• Home
• Loan: Images
• Student Loan Default: Answers
• Nonrecourse Debt: Encyclopedia
• Internal Debt: Blogs
• Privacy
• Business: Financial Services: Leasing Services: Automotive: Directory
• Consideration: Dictionary
• Business: Financial Services: Automobile Buying and Financing: Directory

Most Popular Pages:

• Resepi Daging: Blogs
• Ayam Masak: Blogs
• Amanah Saham: Blogs
• Resepi: Blogs
• Nasi Tomato: Blogs
• Kaki Crocs: Blogs
• Home
• Resepi Ikan Tenggiri: Blogs
• Kedahlanie: Blogs
• Masak Masak: Blogs

Related 'Loan' Searches: