A loan is a sum of money borrowed from a person or lending agency to be returned at a stipulated date together with interest at a specified rate. Defaults in payment will attract additional charges in some cases. The first step in any loan agreement would be filling in an application form. The criteria for approval will depend upon a number of factors like credit background of the borrower, his current financial status, reputation in the industry in the case of a business loan etc.
A loan is applied for different purposes like purchase or up gradation of machinery, purchase of a vehicle, house, educational support etc. There are specific lending agencies for each of these purposes. Banks and financial institutions consider loans to be a major part of their business.
Some loans require collateral or security from the part of the borrower to get approved. He will lodge some sort of asset with the lender. In case he defaults payment the lender will take control of the asset. Usually, the interest rates for such secured loans will be much lower. The lender will get an appraisal done of the asset in question before keeping it as security.
Unsecured loans are pretty difficult to get because the risk factor is high for the lender. They are advanced only against the sound credit history of the borrower. The only way to recover these loans would be to engage debt collectors or collection agents who will hound the borrowers until they repay the amount. As a last resort the lender might even file a lawsuit against the borrower.
Be careful of payday loans that are advanced against paychecks and are comparatively easy to get. They carry exorbitant rates of interest and huge fees for late payments. Its better to opt for them as a last resort when all other alternatives fail.
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