A loan is an arrangement where money is lent by one person (the lender) to another (the borrower); the borrower must abide by the payment terms by signing an agreement before the funds will be released. Lending money is the most usual reason but it can also include goods, services and even people but this article is dealing with those of a financial nature. The lender will expect full repayment of the amount borrowed within the time frame arranged when the money was lent; when payments are made can vary, but they are normally at the same time each month.

All monetary debts consist of two elements: the sum owed and the interest charge for the time during which it is payable over; this is added to the overall amount owed. One type of arrangement is to have the interest paid off before the sum so the first few installments might only be the interest charges that have been added. The more common type of is where the interest charges are added to the capital sum then the total is divided into equal amounts with a small amount of interest being paid each month.

Acting as the provider is one of the principal tasks for financial institutions. Credit and bank loans are a quick and easy way for anyone to increase their cash flow with only minimal effort; whilst other ways to raise capital can be used, this is often the quickest method.

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. With this type of loan, should the borrower fail to make payments on the loan or default, then the bank or other financial institution has the right to sell the property; to recover sums owing to them, they may place it an auction.

In some instances, this method of security can be used when taking out a loan for a car for instance; in this instance, the car becomes it's own security for the debt. The duration of the loan period is often considerably shorter, usually corresponding to the useful life of the car; for cars, this very rarely extends beyond five years.

The average person may have a number of unsecured loans or credit facilities and not even realize it; credit cards, a bank overdraft, even a line of credit for instance, are all examples of unsecured lending. Although it is difficult to provide any interest rates as they will differ greatly from one bank to the next, if you want to lose the highest interest rate unsecured debt you have: cut up those store cards.

On occasion it is has been known for financial companies to apply direct and indirect pressure for someone to use one of their services so that the company will have a hold over the individual; this type of abuse is known as predatory lending. Credit card companies in many countries are often accused of a similar practice where they lend money at very high interest rates and make money out of frivolous extra charges. Always remember to look carefully at the small print of any financial agreement you are about to sign.