A loan is a business contract in which lender agrees to give the borrower a certain sum of money with an expectation of getting the total amount back at a later date. The detailed terms of such a transaction are normally written down in the form of a promissory note or other type of contract. For example, the lender can demand some extra money over and above the original amount of loan. Original amount of loan is called principal and the extra amount demanded is called interest. In order to complete the transaction the borrower should agree to all the specifics of the contract including principal amount owed, interest rate applicable and dates when interest amount and principals become due. Due dates are important because, as per repayment terms lenders can assign penalties or fees for missed due dates i.e. late payments.
Who Applies for Loan?
Generally people avoid applying for loan because the institutionalized lenders like banks have started to include hidden fees and penalties in their contract documents. Excessive, complex and variable interest rates and financial charges and late fees are an example of what most of us have to bear after getting a loan from banks and other financial institutions.
Only people in face of large and expensive purchases (buying a home or a car) go for some sort of financial loan. Such loan can be a bank mortgage or it can be a private loan extended by the person or entity selling the item (i.e. car, home appliances etc.).
