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Information on Loans

This Market Business News information hub provides everything you need to know about loans. It also includes links to articles with more comprehensive explanations on themes related to lending. Basically, loans refer to things that are borrowed/lent, especially money.

This page does not include themes focusing on mortgages. For our mortgages hub, go to MBN’s Information on Mortgages page.

Accrued Interest – the total interest that has built up so far on a loan. It is also the interest that a security has accumulated since the principal investment. To accrue means to accumulate or receive (payments or benefits) over time.

Amortization – may refer to either a loan’s repayment schedule (the distribution of repayments in multiple installments), or the spreading of capital expenses for intangible assets over a given period.

Amortizing Loan – a loan with scheduled regular repayment installments that pay both interest and principal. Also called an amortized loan.

Bad Debt – a loan or sale of a product or service (account receivable) that won’t be paid back. Bad debts are usually written off by companies as expenses. Also called a delinquent loan or bad loan.

Bridge Loan – a short-term loan taken by a company or individual in order to get short-term working capital or secure a transaction. The borrower expects either to sell an asset or have funds coming in soon. In the UK it is called a bridging loan.

Bullet Loan – a loan in which the principal is not paid back until the end of the term. There is a large ‘balloon’ payment at the end. In some cases the installments include interest payments, but the principal is only paid off at maturity. Also known as a balloon loan.

Commercial Paper – a short-term loan in the form of an IOU that is tradable. It is an unsecured money market instrument issued as a promissory note. Commercial papers are typically issued by large companies to obtain funds to meet short-term debt obligations such as the payroll.

Credit Card Loan – every time a consumer buys something using a credit card, the card issuer is lending money – this is called a credit card loan. If the debt is repaid by the ‘grace period’ deadline, no interest is charged (as long as the customer does not carry a balance). Also called credit card debt.

Demand Loan – a loan with no payment schedule or maturity date, which the lender can call at any time (demand full payment on the remaining debt). Also called a broker loan, call loan or demand note.

Discount Loan – the lender discounts interest and other charges from the face value before forwarding the money to the borrower. However, the debtor has to pay back the principle, interest, plus charges. Only used for short-term lending.

Evergreen Loan – a virtually everlasting loan. The credit facility is renewed again and again. The borrower does not have to pay back the principal over a set period. Also known as a standing loan or revolving loan.

Loan – anything that is borrowed, usually in the form of property or money, which is eventually paid back with interest to the lender (unless it is an interest-free loan). There are several types of loans.

Loan Capital – most commonly in the form of debentures, a bank overdraft, or a bank loan, this is money that a company borrows from financial institutions and people for an agreed period. The borrower pays interest on the loan.

Loan Guarantee – a loan in which a government, person or some other entity promises to cover the borrower’s debt obligation in the event of a default. The guaranteeing party is called a ‘guarantor’.

Loan Modification – alterations that are made to an ongoing mortgage loan because the borrower is unable to pay it off over the long term. This is not the same as refinancing.

Loan Shark – a moneylender who charges outrageous interest and charges on loans. Some work illegally and threaten debtors with violence. In some cases they have been known to force borrowers into drug dealing and prostitution.

Loan to Value Ratio (LTV Ratio) – a calculation for measuring the risk of people applying for a loan. Most financial institutions usually used the LTV ratio. The greater the ratio the higher the risk.

Non-Performing Loan – a loan in which no money has come in to pay for the interest and principal for over 90 days. When a loan becomes non-performing the lender’s chances of getting back its money are considerably lower.

Personal Loan – a loan taken by a person; not a business or government. Most personal loans are used to renovate a home, pay for a wedding, cover the costs of a funeral, a vacation, or an unexpected event. Personal loans have shorter terms than mortgages.

Secured Loan – a loan with an asset such as a car or home used as security (collateral). If the borrower fails to pay back the debt, the lender can use the asset to recover the money.

Soft Loan – a loan with a very low interest rate (sometimes zero interest). Sometimes the debtor is given interest holidays and longer repayment periods. The World Bank lends money in the form of soft loans to developing nations. Also called soft financing or concessional funding.

Syndicated Loan – a loan in which several banks and/or financial institutions from a syndicate (group) and lend money to one debtor. The borrower is typically a corporation, government or the organizer of a large project. Also called a syndicated bank facility.

Unsecured Loan – a loan without any kind of security (collateral) or guarantor tied to it. If the borrower defaults the lender risks losing all the money lent. Also known as an unsecured debt.