Loan is a kind of financial obligation. Like all financial obligations, a loan demesnes the redistribution of financial possession over time, between the loaner and the recipient. In a loan, the recipient initially receives or borrows certain amount of money, called the principal, from the loaner. He is obligated to repay the equal amount of money to the loaner at a later time. Typically, the money is repaid in regular equal installments, or partial repayments.
The loan is generally rendered at a cost, referred to as interest on the loan. This provides an incentive to the loaner to engage in the loan.
Loans are of the following types;
Unsecured Loan- These types of loans are not secured against any asset of the recipient. Unsecured loans may be available from financial institutions or under various marketing packages. Unsecured loans include;
Demand Loans- Demand loans are short term loans with no fixed dates of repayment. They carry a floating interest rate which varies according to the prime rate.