A loan is a type of debt that is useful in the world of financing. It involves the redistribution of financial assets over time, between a borrower and lender. The borrower receives an amount of money called the principal from the lender, which can be a financial institution. The borrower must repay the amount of money to the lender in the future. The money is usually repaid in regular installments. When it comes to an annuity, each of the installments is the same amount. A loan comes with a cost, which is called the interest on the debt. This is why a lender agrees on the loan in the first place. A contract governs the obligations and restrictions.
There are different types of loans. A secured loan involves the borrower offering collateral (like a car or property). A mortgage loan helps in property financing; the financial institution is given security in the form of a lien on the title to the house. In the case of default, the bank has the right to take over and sell the house to recover the money. A car loan is used for a car in the same way as a home loan is used for a house. The two types of auto loans are direct and indirect loans. They are used for vehicle financing. With a direct auto loan, a bank gives the loan directly to the consumer. However, in the case of an indirect auto loan, a car dealership acts as the intermediary between the financial institution and the consumer. Business loans include the recourse note, which is common for limited liability partnerships. An unsecured loan is not secured against a borrower's assets. These are included in personal loans, credit card debt, bank overdrafts, and lines of credit.