Loan | What is a Loan | How does a Loan work

The loan helps companies expand their operations. That is to say, it enables you to reach your financial goal by borrowing money from individuals or an organization. There are different kinds of loans. To know the best for you, you are in the right place, just read this article to the end.


What is a Loan?

A loan is simply money or property given to an individual for future repayment of the amount along with an interest. Thus, it can before a  particular, one-time amount or it can be for an open-ended line of credit up to a specified limit. Wikipedia

However, loans are majorly given by governments, organizations and financial institutions. For banks, the interest and fees they get from loans are a primary source of revenue.

How does a Loan work

Each party agrees to the terms before any money or property is disbursed. However, if the organization (lender) ask for collateral, what they required will be listed in the lend documents. Some loans, you will find the maximum amount of interest and other agreements like period of before repayment.

Every lend with high-interest rates takes a long time to pay off. The terms loans are known as fixed payment loans while Revolving loans are spent, Payback and spent again.

Types of loans

If you want to get a loan, it’s ok you go ahead and read through the various kinds and factors that make their costs and terms to differ.


When you talk about Secured one, we have mortgages and car loans. Why did I call it a Secured one?  It is because you back them up with collateral.

Unsecured Loan

Examples of this type of lend are credit cards and signature loans. Why is it unsecured?  Due to they don’t have collateral back up. Furthermore, the unsecured type comes with higher interest rates, due to the lender is at risk side.

Revolving type

Revolving type can be spent, payback and spent again. Thus the credit card loan is an example of the unsecured Revolving while a home equity line of credit is the Secured one.


A term loan is paid off in equal monthly installments for a period of time.  A car lend is a Secured term loan while a signature lend is an unsecured term.


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