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Transfer of money that must be repaid

A loan is money that one party gives to another party in a transaction with the condition that they return it with interest.

Loans have been known since ancient times. Even before our era, some people lent to others. Today, it is mostly commercial banks that lend money.

Recently, with the development of the Internet, such a form of lending as p2p-lending, that is financial relationships between individuals, is becoming popular.

Different Types of Loans

Personal Loans

Personal loan is considered the most popular type of loan. It involves financial relationship between a bank and an individual. Most often, personal loans are needed to pay for travel expenses, vacations, weddings and other events such as home renovations or medical treatments. Typically, banks offer customers different types of personal loans depending on their credit score and other conditions.

There are two types of personal loans:

  • A secured personal loan is secured by collateral. It may be a vehicle or a savings account. If an individual owns a car or other vehicle, a secured personal loan is a preferred option.
  • Unsecured loans are not backed by collateral. They require a higher credit score and are more expensive. The reason is that the bank takes on more risk.

Student Loans

  • Student loans are used to pay for education. This also includes living expenses and fees. Student loans are generally divided into two groups:
  • Private - these are available to students with far fewer benefits and protections. The rates depend on how good your credit is.
  • Federal - they come with some benefits and more protection. The downside is that the interest rate is a bit higher.
  • Student loans are very popular in the United States. There are 37 million borrowers in the country and the total debt is $1.38 trillion.

Auto Loans

Auto loans are designed to help customers buy a vehicle. The repayment terms are usually several years, in general, from three to seven years. They are considered secured loans. The collateral is the vehicle itself.

Auto loans are ridiculously popular across the world. They are offered not only by banks but also by credit unions and car dealerships.


A mortgage is a loan designed to provide an opportunity to purchase and maintain a home or another type of real estate. Interest rates can be adjustable or fixed. In general, the cost of a mortgage depends on its type, home location, interest rate type and other factors.

The cost of mortgage debt in the United States is estimated at more than $16 trillion.

Debt Consolidation Loans

Debt consolidation is designed to allow customers to get a new loan to pay off their other loans. Although it may seem like bad practice, in this way it is possible to streamline payments and reduce financial burden.

Payday Loans

Payday loans are short-term loans that are usually extended until the next paycheck. In many cases, payday loans are subject to criticism. The reason is that the interest rate may be hundreds and even thousands percent annually. The payday loan industry is regulated by the government. They are banned in some states in the United States.

Since offering payday loans is very lucrative, many companies hire internet marketers to promote their offers in exchange for commission. In this way, many customers apply for payday loans without realizing their real price.

An alternative to payday loans is a regular credit card.

Loans for Small Businesses

When starting a business, many entrepreneurs turn to banks, credit unions, and other financial institutions.

In most cases, they serve businesses with up to three hundred employees and are designed to finance a variety of operations. Also, freelancers and solopreneurs apply for small business loans.

Loan Characteristics

  • Time to maturity. It describes the length of the contract. In most cases, the longer the loan contract, the lower the interest rate.
  • Interest rate. It describes the cost of borrowing money and determines the total amount of money that should be repaid.
  • Security - secured and unsecured loans depending on whether collateral is required.
  • Repayment schedule. Typically, payments are made at set intervals, usually at the end of the month. They may also be made at the end of the contract term.


Further Resources



James Tapper
May 9, 2021
the Guardian
Criminals have been using social media - from dating sites to local community groups - to find, threaten and control people in debt
Oscar Gonzalez
April 25, 2021
Get ready. It'll soon be time to start making those payments.
Ameris Bancorp
April 22, 2021
/PRNewswire/ -- Ameris Bancorp (Nasdaq: ABCB) (the "Company") today reported net income of $125.0 million, or $1.79 per diluted share, for the quarter ended...
Frontera Energy Corporation
April 17, 2021
/PRNewswire/ - Frontera Energy Corporation (TSX: FEC) ("Frontera") and CGX Energy Inc. (TSXV: OYL) ("CGX"), joint venture partners (the "Joint Venture") in...
Bank of Botetourt
January 28, 2021
/PRNewswire/ -- Buchanan-based Bank of Botetourt (OTCPK: BORT) announced today that it has filed its Call Report with the Federal Deposit Insurance Corporation...


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