What is a Loan

A loan is a legally binding credit agreement that can be arranged by going out by going to a bank, telephoning a bank service center, or by going to third party brokers.

People’s needs and loan amounts required range widely. A loan in England is usually for amounts borrowed between 5,000-25,000 $10-$50k. The duration of a loan period can last for usually a fixed term ranging from 1-10 years. The principal amount is what the bank agrees to lend the borrower. So if person A wants to borrow $10,000 from the bank, then in effect this is how much money the bank will transfer to the borrower.

The loan agreement form is governed by the laws of that particular countries legal system. The companies details, along with the customers details i.e name, address, etc are stated, the principle amount borrowed, along with the interest rate, the payment schedule, term of loan etc are all listed in writing. The customer is deemed to be bound by the loan agreements once he/she has signed and dated all the paperwork. There maybe a cooling off period, though usually once the money is transferred then the loan deal is complete.

The misconceptions of borrowing: Upon borrowing say $10,000 over 120 months for example. The borrower would be misguided in thinking they would be paying simply the $10,000 back over this time period each month.

Upon receipt of a loan, interest is calculated on a daily accrued basis, which increases the loan amount borrowed. So for example a 7% interest loan the way in which to calculate the annual interest would be using a calculation: 1.07x 10,000 loan amount= 10,700. This is a very simple guide calculation, though it is used just to signify the extra 700 in interest charged for taking out this loan.

Other charges can include an arrangement charge which is sometimes made by the lender to again earn extra commission and fees for themselves as well as for the lending company. Also exit fees and missed payments are also charged for an arranged and agreed fee.

The factors governing acceptance include factors such as credit history, income, and proof of earnings. A person who has a higher risk of default and bad credit history might end up being declined, or paying exorbitantly high rates of interest. Conversely the more secure financially a person is the more competitive rate will be given to this particular person in this risk class.My idea of deciding to take out a loan, would be based on principle. Do i need money to finance something? and if i do how can i afford to pay it back. These are the general questions that a bank manager will ask, also proof of earnings are needed.

Each month a similar repayment amount is taken from by the bank, from the borrowers current account. There maybe occasions when the borrower misses a payment usually due to lack of funds, or exceeding their own overdraft limit. In such cases the bank will add a agreed amount of fee’s to the borrowers loan. A bank will send the borrower a letter explaining to them that a payment has been missed on a given date. If the borrower continues to miss payments or is unable to make payments then he or she is in trouble.

Defaulting on a loan: Upon default cases, a bailiff or credit receiver might possibly come knocking on your door asking for payment. These people in my view are real nasty people who earn their money, by other people’s misfortune, and also based on the inability to pay back loans as agreed. Also instead of having to face the humiliating effect of these bailiff’s would be to go to court and declare personal bankruptcy.

All in all a loan is good for people who have the facility, and can knowingly live with the harsh reality of paying it all back with interest.