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A loan is a type of debt. All material things can be lent but this article focuses exclusively on monetary loans. 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 installments, to the lender. This service is generally provided at a cost, referred to as interest on the debt. A borrower may be subject to certain restrictions known as loan covenants under the terms of the loan.

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. Bank loans and credit are one way to increase the money supply.
 

Secured Loans

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.

 

Unsecured loans

These may be available from financial institutions under many different guises or marketing packages:

credit card debt,
personal loans,
bank overdrafts
credit facilities or lines of credit
corporate bonds
The interest rates applicable to these different forms may vary depending on the lender, the borrower. These may or may not be regulated by law.
 

PayDay Loans

A payday loan or paycheck advance is a small, short-term loan that is intended to cover a borrower's urgent expenses until their next payday. Typical loans are between $100 and $1500, are usually on a 2 week term, and usually have interest rates in the range of 390 percent to 780 percent (annualized). They are also sometimes referred to as cash advances, though that term can also refer to cash provided against a prearranged line of credit such as a credit card.

Though payday lending is primarily regulated at the state level, the United States Congress passed a law in October 2011 that will cap lending to military personnel at 36% APR. The Defense Department called the lending "predatory", and military officers cited concerns that payday lending exacerbated soldier's financial challenges, jeopardized security clearances, and even interfered with deployment schedules to Iraq.

Some federal banking regulators and legislators seek to restrict or prohibit the loans not-just for military personnel, but for all borrowers, because the high costs are viewed as an unnecessary financial drain on the lower and lower-middle class populations who are the primary borrowers.

Lenders point out that these loans are often the only option available to consumers with bad credit who have urgent expenses and can't get a bank loan, credit card, or other lower-interest alternative. Critics counter that most borrowers find themselves in a worse position when the loan is due than they were when they took the loan, with many getting trapped in a cycle of debt.

The industry's fast paced growth indicates a highly profitable business model. Statistics show that the majority of the industry's profit comes from repeat borrowers, who are unable to pay them off on the due date and instead repeatedly renew their loans, paying fees each time.[
 

E-Lending Staggering Growth

The term eLending or e-Lending is a relatively new term and is used to describe a new medium for bankers and other lenders to engage in online lending activity. Data can be transmitted electronically without the use of paper, telephones or fax machines.

The information age has provided loan seekers with an opportunity to compare, search for, apply for and receive loans from internet websites. Some of the top online lenders allow consumers to "sign" their documents online with an electronic signature.

 Bankers who traditionally relied upon local customers at the branch level, or lenders who traditionally relied upon responses from advertisements in local or regional newspapers, now require an online presence to compete nationally or in some cases globally.

There has been an explosive growth in online loan applications, yielding a boon for lenders who are adept to internet lending. eLending is a market segment that has garnered the most attention from spammers or affiliate marketing experts. They vie for customers at lending comparison pages and then forward their inquiries to valid e-lenders.

 Lenders who are competing for online applications are aware that the consumer has many choices online. Very often low cost options are available to the online consumer in order for eLenders to be competitive.

Consumers may benefit from eLending programs due to the increased efficiency of online lending, as ordinary Snail mail may not be required from eLenders. A loan application, a credit report, an appraisal report, and title insurance reports may all be sent via email to and from the parties. Efficient loan processing can speed up a consumer loan transaction.
 

 To prepare for an online mortgage or other eLending type transaction, know your credit score. You can obtain the three most common credit scores being reported about you directly from TransUnion, Equifax, and Experian (fico). Go to their sites and get a free report but if you require the information rapidly pay their fee to get a copy of all three bureau reports and the corresponding scores they have assigned to you.

Usually the middle score will count and should be at 650 or above for your eLending transactions to be approved electronically. Some lenders will have higher criteria online. Few will have lower. To be approved electronically with a sub 600 fico score, visit a broker who can access their wholesale lending data base and put your loan through a lender that allows a fico score below 650, 600 or even lower. The lowest score requirement for an electronic approval is generally done through large "sub-prime" or "Alt-a" lenders. They can allow for a 580 score automated approval.

Lower scores can be approved in traditional format, but will need more review on other items such as property appraised value. eLending options are best accessed when your credit score is average or above. To access the new wave of electronic lending, diligently manage your fico or credit scores.
 

This is a consumer assistance web site designed to help the average consumer become more educated on loans as well as loan requirements.

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