A person or body that provides another with a sum of money (loan) is called the creditor and the person borrowing the sum is called the debtor; normally finalized by a legal document as it is a binding arrangement between the two. Lending money has been around since it was invented although people and other goods or services have been lent to others for longer but as the majority of these are for money; this is what this article is about. The lender will expect full repayment of the amount borrowed within the time frame arranged when the money was lent; normally repaid in regular amounts, which can be on a monthly, but sometimes three monthly basis.

The debt is repaid but an interest charge is added for the service being provided and the method by which the lender is compensated. For instance, some debts repay the interest first and then once this is cleared, the borrowed sum is gradually repaid. For most people repaying a debt, they know that each month, part of the debt is being paid off along with a small amount of interest that has been added to it.

Whilst financial establishments can play many roles, this is the most frequent way in which they are used. Credit and bank loans are a quick and easy way for anyone to increase their cash flow with only minimal effort; although other money raising methods do exist.

Arranging a mortgage, whilst a little more complicated, is in essence the same but the use for which it is required is not flexible and the money can never be used for anything other than buying a house or land. The financial institution is given security however; in this case the title to the house, until the mortgage is paid off in full. This is a much more serious type of situation and one where it is actually possible for the bank to foreclose on the loan if the borrower fails to make repayments; to recover sums owing to them, they may place it an auction.

In some instances, a loan taken out to purchase a new or used car may be secured on the car itself; in this instance, the car becomes it’s own security for the debt. In this instance the life of the loan will not exceed the useful life of the vehicle; for cars, this very rarely extends beyond five years.

Unsecured loans are available from financial institutions under many different guises or marketing packages; usually this type of arrangement refers to money, credit cards and bank overdrafts, to name a just a few. Although it is difficult to provide any interest rates as they will differ greatly from one bank to the next, if you want to lose the highest interest rate unsecured debt you have: cut up those store cards.

There are many names for it but predatory lending is the most common; used when a company places pressure on a person to use their services in order for the company to have a financial hold on that person. An easy way to do this is for a credit card company to issue cards to individuals and encourage them to use the cards and then keep them paying these amounts off for a long time because they have such high interest rates. Always remember to look carefully at the small print of any financial agreement you are about to sign.

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