In today’s times, when the cost of living is increasing, revenues are unsatisfactory, loans are really the only chance to secure more money, or to buy a car or property. Although we will all use them now, do we know what loans really are?
According to the encyclopedic definition, loans are nothing else but a variation of a written contract. Its parties are a financial institution and a client who can be both a company and a natural person. The loans must have a fixed purpose, duration and interest rate that the borrower will have to pay. The loan agreement also contains information on the form of repayment of subsequent installments, their amounts and frequency.
What are the simplest words we can describe loans?
Certainly, it would be necessary to focus on the timeliness of their repayment, maneuverability and the occurrence of interest rates. Certainly, they will be the three most important elements that will characterize loans.
It is common to say that we have so many types of loans as banks have consumers. For example, someone wants to get a long-term loan to build real estate, and someone else just to buy a TV or home appliances. What’s more, the company will apply for a huge loan in order to make new investments. That is why we can distinguish various loans. We divide them primarily into economic ones. The first of these are strictly economic, concerning companies and loans for individuals.
The most popular business loans are, of course, trading and investment. On the other hand, if it concerns loans for individuals, it will be a loan for companies, commercial and consumer credit, where the exact purpose of using money does not have to be strictly defined, because they are allocated to the most basic needs, which are relatively inexpensive.
It should be noted that loans are not only the only way out for a huge number of our countrymen and a commitment made for decades, but also the most important element of banks’ income. Interest and commissions on granting such loans help banks generate real profits.
It is worth noting that loans are not only a profit for the financial institution and a salvage for the borrower, but additionally it plays an important role on the market when it comes to the use of financial instruments. It allows, among others, to introduce money into circulation, thanks to which it will be more easily available, which also increases the efficiency of its distribution.
Ultimately, you should remember that only the bank can grant loans. Other banking institutions may only grant loans, and these in terms of financial law are completely different organizations operating on different principles.