# Loan: Wikis

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More interesting facts on Loan

# Encyclopedia

A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.

In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time. Typically, the money is paid back in regular installments, or partial repayments; in an annuity, each installment is the same amount. The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions known as loan covenants. Although this article focuses on monetary loans, in practice any material object might be lent.

Acting as a provider of loans is one of the principal tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is a typical source of funding.

## Types of loans

### Secured

A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan.

A mortgage loan is a very common type of debt instrument, used by many individuals to purchase housing. In this arrangement, the money is used to purchase the property. The financial institution, however, is given security — a lien on the title to the house — until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it.

In some instances, a loan taken out to purchase a new or used car may be secured by the car, in much the same way as a mortgage is secured by housing. The duration of the loan period is considerably shorter — often corresponding to the useful life of the car. There are two types of auto loans, direct and indirect. A direct auto loan is where a bank gives the loan directly to a consumer. An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the consumer.

A type of loan especially used in limited partnership agreements is the recourse note.

A stock hedge loan is a special type of securities lending whereby the stock of a borrower is hedged by the lender against loss, using options or other hedging strategies to reduce lender risk.

A pre-settlement loan is a non-recourse debt, this is when a monetary loan is given based on the merit and awardable amount in a lawsuit case. Only certain types of lawsuit cases are eligible for a pre-settlement loan. This is considered a secured non-recourse debt due to the fact if the case reaches a verdict in favor of the defendant the loan is forgiven.

### Unsecured

Unsecured loans are monetary loans that are not secured against the borrower's assets. These may be available from financial institutions under many different guises or marketing packages:

The interest rates applicable to these different forms may vary depending on the lender and the borrower. These may or may not be regulated by law. In the United Kingdom, when applied to individuals, these may come under the Consumer Credit Act 1974.

### Demand

Demand loans are short term loans that are atypical in that they do not have fixed dates for repayment and carry a floating interest rate which varies according to the prime rate. They can be "called" for repayment by the lending institution at any time. Demand loans may be unsecured or secured.[1]

## Loan payment

The most typical loan payment type is the fully amortizing payment in which each monthly rate has the same value overtime. [2]

The fixed monthly payment P for a loan of L for n months and a monthly interest rate c is: [3]

$P = L \cdot \frac{c\,(1 + c)^n}{(1 + c)^n - 1}$

## Abuses in lending

Predatory lending is one form of abuse in the granting of loans. It usually involves granting a loan in order to put the borrower in a position that one can gain advantage over him or her. Where the moneylender is not authorized, they could be considered a loan shark.

Usury is a different form of abuse, where the lender charges excessive interest. In different time periods and cultures the acceptable interest rate has varied, from no interest at all to unlimited interest rates. Credit card companies in some countries have been accused by consumer organisations of lending at usurious interest rates and making money out of frivolous "extra charges". [4]

Abuses can also take place in the form of the customer abusing the lender by not repaying the loan or with an intent to defraud the lender.

## United States taxes

Most of the basic rules governing how loans are handled for tax purposes in the United States are uncodified by both Congress (the Internal Revenue Code) and the Treasury Department (Treasury Regulations — another set of rules that interpret the Internal Revenue Code).[5] Yet such rules are universally accepted.[6]

1. A loan is not gross income to the borrower.[7] Since the borrower has the obligation to repay the loan, the borrower has no accession to wealth.[8]

2. The lender may not deduct the amount of the loan.[9] The rationale here is that one asset (the cash) has been converted into a different asset (a promise of repayment).[10] Deductions are not typically available when an outlay serves to create a new or different asset.[11]

3. The amount paid to satisfy the loan obligation is not deductible by the borrower.[12]

4. Repayment of the loan is not gross income to the lender.[13] In effect, the promise of repayment is converted back to cash, with no accession to wealth by the lender.[14]

5. Interest paid to the lender is included in the lender’s gross income.[15] Interest paid represents compensation for the use of the lender’s money or property and thus represents profit or an accession to wealth to the lender.[16] Interest income can be attributed to lenders even if the lender doesn’t charge a minimum amount of interest.[17]

6. Interest paid to the lender may be deductible by the borrower.[18] In general, interest paid in connection with the borrower’s business activity is deductible, while interest paid on personal loans are not deductible.[19] The major exception here is interest paid on a home mortgage.[20]

## Income from discharge of indebtedness

Although a loan does not start out as income to the borrower, it becomes income to the borrower if the borrower is discharged of indebtedness. [21] Thus, if a debt is discharged, then the borrower essentially has received income equal to the amount of the indebtedness. The Internal Revenue Code lists “Income from Discharge of Indebtedness” in Section 62(a)(12) as a source of gross income.

Example: X owes Y $50,000. If Y discharges the indebtedness, then X no longer owes Y$50,000. For purposes of calculating income, this should be treated the same way as if Y gave X \$50,000.

For a more detailed description of the “discharge of indebtedness”, look at Section 108 (Cancellation of Debt (COD) Income) of the Internal Revenue Code.[22]

## References

1. ^
2. ^ http://www.washingtonpost.com/wp-dyn/content/article/2007/10/05/AR2007100501165.html
3. ^ http://www.mtgprofessor.com/formulas.htm
4. ^ Credit card holders pay Rs 6,000 cr 'extra' May 3, 2007
5. ^ Samuel A. Donaldson, Federal Income Taxation of Individuals: Cases, Problems and Materials, 2nd Ed. 111 (2007).
6. ^ Id.
7. ^ Id.
8. ^ Id. See Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955)(giving the three-prong standard for what is "income" for tax purposes: (1) accession to wealth, (2) clearly realized, (3) over which the taxpayer has complete dominion).
9. ^ Donaldson, at 111.
10. ^ Id.
11. ^ Id.
12. ^ Id.
13. ^ Id.
14. ^ Id.
15. ^ Id.; 26 U.S.C. 61(a)(4)(2007).
16. ^ Id.
17. ^ Id. at 112.
18. ^ Id.
19. ^ Id.
20. ^ Id.
21. ^ Id.; 26 U.S.C. 61(a)(12)(2007).
22. ^ Id.; 26 U.S.C. 108(2007).

# 1911 encyclopedia

Up to date as of January 14, 2010

### From LoveToKnow 1911

LOAN (adapted from the Scandinavian form of a word common to Teutonic languages, cf. Swed. lan, Icel. lan, Dut. leen; the O.E. laen appears in "lend," the ultimate source is seen in the root of Gr. Mira' and Lat. linquere, to leave), that which is lent; a sum of money or something of value lent for a specific or indefinite period when it or its equivalent is to be repaid or returned, usually at a specified rate of interest (see Usury and Money Lending). For public loans see Finance, National Debt, and the various sections on finance under the names of the various countries.

 << Loam Loanda >>

# Bible wiki

Up to date as of January 23, 2010

### From BibleWiki

The Mosaic law required that when an Israelite needed to borrow, what he asked was to be freely lent to him, and no interest was to be charged, although interest might be taken of a foreigner (Ex 22:25; Deut 23:19, 20; Lev 25:35-38). At the end of seven years all debts were remitted. Of a foreigner the loan might, however, be exacted. At a later period of the Hebrew commonwealth, when commerce increased, the practice of exacting usury or interest on loans, and of suretiship in the commercial sense, grew up. Yet the exaction of it from a Hebrew was regarded as discreditable (Ps 155; Prov 6:1, 4; 11:15; 17:18; 20:16; 27:13; Jer 15:10).

Limitations are prescribed by the law to the taking of a pledge from the borrower. The outer garment in which a man slept at night, if taken in pledge, was to be returned before sunset (Ex 22:26, 27; Deut 24:12, 13). A widow's garment (Deut 24:17) and a millstone (6) could not be taken. A creditor could not enter the house to reclaim a pledge, but must remain outside till the borrower brought it (10, 11). The Hebrew debtor could not be retained in bondage longer than the seventh year, or at farthest the year of jubilee (Ex 21:2; Lev 25:39, 42), but foreign sojourners were to be "bondmen for ever" (Lev 25:44-54).

This entry includes text from Easton's Bible Dictionary, 1897.

# Simple English

A loan is a type of debt. The borrower needs to repay the lender the sum of money loaned part by part over time in order to clear the debt.

Acting as a provider of loans is one of the main tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is a main source of funding. Bank loans and credit are one way to increase the money supply.

# Important components of a loan

A loan can be broadly described by the following terms.

## Deposit or Down-payment

The deposit or down-payment is an amount of money that the borrower is required to pay, as the first contribution towards clearing the debt, so that the loan deal can be finalized. The deposit is usually higher than the monthly contribution towards the loan. Some loans require a deposit while some do not. The deposit is usually a fraction, typically a percentage, of the total amount that is loaned out.

## Installments

An Installment is money that is a monthly payment towards the loan. It may not be necessarily paid monthly but it has to be paid from time to time over throughout the loan deal. Installments are paid according to a loan rate.

## Interest

Interest is a charge on top of the value of the loan, that acts as a cost of the loan. Interest is paid according to a rate called an interest rate. The interest rate varies from loan to loan and from lender to lender.

# Types of loan

Loans can be broadly classified as either secured or unsecured loans.

## 1. Secured Loans

Secured loans are loans for which the borrower is required to guarantee Repayment, by pledging with property, for instance,a car, a house etc. This property is called security or collateral. Because of the pledging, secured loans are given in larger amounts and have lower interest rates. However, there is a risk of loosing the property used as security, in the event that the loan is not paid off. An Examples of a Secured loans is mortgage.

## 2. Unsecured loans

Unsecured loans are loans that are given without pledges of repayment. This means that the borrower is not required to provide security to get the loan. Because of the high risk involved, unsecured loans are given out in smaller amounts and have higher interest rates. The lenders raise the interest rates in an effort to recover their money as quickly as possible. Most personal loans are unsecured loans.

## Common types of loans

### Personal loans

A personal loan is a 'small expense' loan that is mostly used by people to finance their day to day emergencies. They come in smaller amounts and therefore, just like most unsecured loans, they are easily approved.

### Home loans

Home loans are loans that are taken for the purpose of buying a house. Home loans are secured loans. The house acts as a collateral or security to the loan.

### Payday loans

Payday loans are the easiest loans to get if you are employed. They are signature loans or cash advances that requires no security. This means that it is possible to get a payday loan even with a bad credit status or no credit at all. Payday loans are given on the basis of employment and income.

However, payday loans have a high interest rate especially when the paying schedule is not followed. The high interest rates are a cost of convenience. Interest could run as high as 2000%, for this reason, it is not a good idea to take a payday loan if you don't expect a salary.

### Auto Loans

Auto loans are loans given out by financial institutions or car dealerships, for the purpose of buying an automobile. Due to the nature of automobiles to loose value with time, Auto loans usually have high interest rates. The shorter the time an auto loan is paid, the lower the overall cost of the loan.

### Mortgage

Mortgage is a loan that is used specifically to purchase a house. Usually, a mortgage is given to you by a mortgage company or any financial institution, after evaluation of your potential to pay back the loan in full. A mortgage is a secured loan, therefore, providing collateral is necessary. Mortgage can be further classified into long-term and short-term mortgages, depending on the length of time required for the mortgage to be paid. Short-term mortgages usually have a term of 15 years while long –term mortgages have a 30-year term.

### Credit Card Loans

When you take a credit card, you have taken loan. This is a credit card loan, and just like any other loan, it comes with interest and fees. Credit card loans are given out by credit companies and most banks today. The interest rates on credit card loans are higher than that on most personal loans, usually around 16%. [1]