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LOANS
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. The
borrower initially receives an amount of money from the lender,
which they pay back, usually but not always in regular
instalments, to the lender. This service is generally provided
at a cost, referred to as interest on the debt.
Acting as a provider of loans is one of
the principal task for financial institutions. For banks loans
are generally funded by deposits. For other institutions issuing
of debt contracts, such as bonds is a typical source of funding.
Other types of debt include mortgages,
credit card debt, bonds, and lines of credit. A mortgage 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 bank, however, is given the title to
the house until the mortgage is paid off in full. If the
borrower defaults on the loan, the bank can reposess the house
and sell it, to get their money back.
The abuse in the granting of loans is
known as predatory lending. It usually involves granting a loan
in order to put the borrower in a position that one can gain
advantage over them.
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