•A loan is a form of debt incurred by an individual or other entity.
•The lender, usually a corporation, financial institution, or government advances a sum of money to the borrower.
•In return, the borrower agrees to a certain set of terms including any finance charges, interest, repayment date, and other conditions.
Types of Loan
i) Collateral Loans
These are secured loans as the commodity kept as a security can be sold by bank to recover the debt, if the borrower fails to pay back the loan.
A guarantor can also act as a Collateral for a loan if he/she promises to pay the loan with interest if the borrower fails to do so.
ii) Non- Collateral Loans
These loans are not secured as nothing is kept as a security that can be sold by the bank to recover the debt, if the borrower fails to pay back the loan.