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What is a Loan?

Author: Thembi Palane
Date: June 6, 2012

Different kinds of loans

You’ve probably seen it on TV, heard it on the radio, or read it in the papers – somewhere, somehow, in your life, you’ve been asked the question: ‘Looking for a loan?’ OR ‘Need a loan?’ And what happens is that 80% of the time your answer is, ‘Yes, I need money, but …’ You always find a reason why you can’t get that loan that’s being offered to you without giving yourself the chance to understand what the loan is all about.

So, what is a loan?

By definition, a loan is a financial transaction in which one party (the lender) agrees to give another party (the borrower) a certain amount of money with the total expectation of repayment agreed upon by both parties. Usually there’s a predetermined time for repaying a loan with conditions attached to it.

In essence, taking out a loan means that you’re receiving money that will have to be paid back portionally or fully at a given time. So, in truth, you’re right to have a ‘but’ when being offered a loan, because you have to make sure that you'll be taking out a loan that's right for you.

Not every loan is the same. Just as there are different types of banks, lenders, brokers, and financial organisations, there are also different types of loans, with different kinds of conditions and interest rates. Lets have a look at some of these different types of loans.

Look at your situation before just taking out any loan. If you’re looking for an immediate loan with a short-term plan and less risk, then a payday loan is a wise route to take. It's easy, quick and simple to get and is paid back on your next payday. There are also personal loans that can be used for anything – from taking a holiday, paying a bill or financing a wedding – hence it being personal. Secured and unsecured loans are also other types of loans, the latter meaning that the lender has nothing to go after if you default on your repayment, while the former means the opposite.

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Category financial hints and tips | Tags online loans