A Loan is a type of debt.
Loans require two parties to meet and agree. The two parties are the borrower, and the lender. The borrower initially asks the lender for a specified amount of money. The lender agrees on the price, and lends the money to the borrower. It is then the borrower's job to pay back the lender in small or large increments.
Now, you may ask, what would be the point of giving away money only to receive it all back when the other person is finished with it? Well, the answer to that question is that the lender charges interest on the loan. The lender will say for example, I will give you $1000 dollars now, but I am going to charge you 3% interest.
This means that when the borrower pays back the lender, they will also have to give back another $30, due to the interest that the lender set. Therefore, both parties are happy because the borrower receives the money he needs and the lender gets back extra in return.
Abuses of the Loan system
There are some people who abuse the loan system. These type of people are called loan sharks. Loan sharks are lenders who will give a large amount of money to a borrower, knowing that the borrower will never be able to pay the loan back.
This puts the borrower in a bad position. The loan shark has complete control over the borrower now, and can do a multitude of illegal things to force them out of their money.
If you know you can't pay back a loan, don't ask for one!
No comments:
Post a Comment