
Add to Favorites \| Editor's Note			Friday 15th of December 2006 11:55:23 PM

The Basics Of Loans

by Poonam Wadhwani - July 18, 2006 - 0 comments

A loan is a type of debt. Basically, a loan entails the redistribution of financial assets over time between the lender and the borrower. The borrower will initially receive an amount of money from the lender, which they will pay back to the lender, usually in regular installments.

Generally, Financial Institutions play the role of providing loans. But, for other institutions, issuing of debt contracts, such as bonds is a typical source of funding. Also, bank loans and credit are ways to increase the money supply.

Reply

Your name: *

E-mail: *

The content of this field is kept private and will not be shown publicly.

Homepage:

Subject: *

Comment: *

[quote=Poonam Wadhwani]<div class="flexinode-body flexinode-1"><style type="text/css">

</style>
<table width="100%"  border="0">
  <tr>
    <td valign="top"><table width="100%"  border="0">
        <tr>
          <td valign="top"><div class="flexinode-textarea-1"><div class="form-item">
 <p>A loan is a type of debt. Basically, a loan entails the redistribution of financial assets over time between the lender and the borrower. The borrower will initially receive an amount of money from the lender, which they will pay back to the lender, usually in regular installments.</p>
<p>Generally, Financial Institutions play the role of providing loans. But, for other institutions, issuing of debt contracts, such as bonds is a typical source of funding. Also, bank loans and credit are ways to increase the money supply.</p>
</div>
</div></td>
        </tr>
        <tr>
          <td valign="top"><div class="flexinode-textarea-2"><div class="form-item">
 <p>Mortgages, credit card debt, bonds and lines of credit are other type od debts. A mortgage is a very common type of debt instrument generally used by people to purchase housing. In this arrangement, money is generally used to purchase property. However, the bank titleâ€™s the house until the mortgage is fully paid off. If the borrower fails to pay it, the bank can repossess the house and sell it in order to get their money back. </p>
<p>Abuse in the granting of loans is knoen as predatory lending. This involves granting a loan in order to put the borrower in a position that one can gain advantage over him or her. </p>
<p>There are many types of loans. But here, in this article, I will explain the basic type of loan that is interest only loan. An interest only loan is a loan in which the borrower pays only the interest on the principle nalance, for a fixed term; but in this, the principal nalance remains unchanged. And then, at the end of this term, the borrower may renew the interest only mortgage, pay off the principal balance or convert the loan to a principal and interest payment loan at his/her option. </p>
<p>For example, in US, a five or ten year interest only period is typical. Afetr this time, the principal balance is amortized for the remaining term. </p>
<p>Viewing it from an investorâ€™s perspective, these loans are sometimes artificially generated from structural securities, particularly CMOs. A pool of securities is created and then divided into tranches. Then, the cashflows that are recieved from the underlying debts are spread through the tranches as per the predefined rules. An interest only loan is one type of tranche that can be created; it is generally created in tandem with a principal only tranche. These tranches will cater to two particular type of investors, depending upon whether the investor is trying to increase their current yield or just trying to reduce their exposure to prepayments of the loans.</p>
</div>
</div></td>
        </tr>
    </table></td>
    <td width="20%" valign="top"><table width="100%"  border="0" valign="top">
        <tr>
          <td width="20%" rowspan="2" align="center" valign="top"><table class="captionbox" cellpadding="5" 
cellspacing="5">
              <tr>
                <td valign="top"><div align="center"><div class="flexinode-image-3"><div class="form-item">
 <img src="http://www.themoneytimes.com/filess/loans 200.jpg" alt="The Basics Of Loans" />
</div>
</div></div>
                    <div class="captiontext"> </div></td>
              </tr>
            </table>
              <br>
              <script type="text/javascript"></script>
              <script type="text/javascript"
  src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
  </script></td>
        </tr>
        <tr> </tr>
    </table></td>
  </tr>
</table>
</div>[/quote]

Allowed HTML tags: <a> <em> <strong> <cite> <code> <ul> <ol> <li> <dl> <dt> <dd>
Lines and paragraphs break automatically.
You may quote other posts using [quote] tags.

More information about formatting options

Captcha Validation: *

Please type in the letters/numbers that are shown in the image above.

Navigation

Subscribe

The Basics Of Loans

Reply

Active forum topics

Poll

Health Updates from TheMedGuru