A loan is an arrangement to borrow money. The lender provides the money with the understanding that the borrower will return it in the future. Loans usually have an interest which gives the lender an incentive to lend out the asset.
Loans can broadly be categorized in to two variations:
- Secured Loans
- Unsecured Loans
Secured Loans
This is the kind of loan where the borrower pledges some kind of collateral as a security until the principal is paid off completely.
The most common example would be a Mortgage Loan, where the lender holds a lien on the house title until it's paid off in full.
Unsecured Loans
This is the kind of loan where the borrower does not provide a collateral.But, generally should provide proof of regular source of income and / or stable job so that the lenders can weigh their risk and come up with an interest rate for the term of the loan.
Examples would be, credit card loans, personal loans etc,.
