Business & Finance Loans

Importance Of Loan

Every human has his own dreams and desires which he wishes to fulfill. These dreams are not limited and cannot be controlled. For fulfilling his dreams, he needs monetary assistance. Money plays a vital role in the life of humans. It has become more than a necessity in todays world. No work is possible without the aid of money. It is not really possible for every individual to have the sufficient amount of money to accomplish his wishes. Thus to get the required sum of money he borrows money which he later pays off. This activity of borrowing money is an important feature of loan.

In technical terms, loan can be referred to as a debt or a liability. Whereas, in simple or literal sense loan means the understanding between the lender and the borrower in which the lender provides a sum of money or moneys worth to the borrower which he agrees to pay back in the stipulated time with interest. The amount that is borrowed is called the principal which is to be paid along with interest. Thus the person, who is at risk in the whole procedure, is the lender.

The rate of interest is decided by the lender. Different methods are used for calculating the rate of interest. The lender of a loan can be an individual, a bank or any financial institution. It is not necessary that the rate of interest is same. Also the time to pay back the loan is decided by the mutual consent of the lender and the borrower. The rate of interest is decided on the basis of the amount of the loan that is given and the period that is granted for the repayment.

The money that is borrowed is to be paid back in installments. The installments may be monthly or quarterly depending on the amount of loan. In certain situations, the lender asks for a security from the borrower against the loan that is given by him. This security is nothing but a guarantee. It may be equipment or land or anything that the borrower is in possession of. By doing this, the lender reduces his risk on the loan that he grants. The borrower holds the title on the land or property or the asset that he gives as a security, but would end up losing it if he is unable to pay back the debt.

If not a security, a contract is made while the loan is given. Contract is another way in which the lender is not at a risk. The contract works as evidence that the loan was given. The borrower cannot deny the fact that he had not taken the loan. This contract is to be signed by both the parties and in case any of them fails to fulfill the requirements, he can be sued. But still it is voidable at the option of the aggrieved party.

Thus loan proves to be very useful for individuals to catch their dreams. So, if you wish to buy something and you are short of money, loan is the solution for your problem. The person applying for loans should be well informed and well aware of the policies of the company and the requirements that are to be fulfilled by him. It is also necessary that he pays the installments on time. The applicant should be well educated to understand the terms and conditions of the agreement. Also he must consider all the various options and then come to a conclusion as to which suits him the most and then take a wise decision.
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