Loan contracts come in all kinds of forms and with varied terms, ranging from simple promissory notes between friends and family members to more complex loans like mortgage, auto, payday and student loans.
Banks, credit unions and other people lend money for significant, but necessary items like a car, student loan or home. Other loans, like small business loans and those from the Department of Veterans Affairs, are only available to select groups of people.
Regardless of type, every loan – and its conditions for repayment – is governed by state and federal guidelines to protect consumers from unsavory practices like excessive interest rates. In addition, loan length and default terms should be clearly detailed to avoid confusion or potential legal action.
In case of default, terms of collection of the outstanding debt should clearly specify the costs involved in collecting upon the debt. This also applies to parties of promissory notes as well.
If you are in need of money for an essential item or to help make your life more manageable, it’s a good thing to familiarize yourself with the kinds of credit and loans that might be available to you and the sorts of terms you can expect.
A loan taken by an individual to fund any personal expense like, for example, a wedding, to make renovations to the home or even for a vacation. Unlike many other kinds of loan, there is no restriction on how the borrowed amount is finally used – the borrower has full freedom to use the money for any purpose they want.
There are two attractive features of loan:
Complete flexibility of end-use. There are no restrictions on how you should spend the loan amount. This in contrast to a home loan or auto loan where the loan amount can only be used to buy a property or a vehicle respectively. You have the freedom to use the money in any way you want.
Lack of collateral. A loan is an ‘unsecured loan’, meaning you are not required to provide any security to the lender in the form of cash, shares or any other assets. This might make it more attractive to some customers who may not be able to raise the cash required as collateral.