Citizendia
Your Ad Here

For other uses, see Loan (disambiguation).

A loan is a type of debt. Debt is that which is owed usually referencing Assets owed but the term can cover other obligations All material things can be lent; this article, however, focuses exclusively on monetary loans. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower. In Business and Accounting, assets are everything owned by a person or company (all tangible and intangible property that can be converted into cash.

The borrower initially receives an amount of money from the lender, which they pay back, usually but not always in regular installments, to the lender. Money is anything that is generally accepted as Payment for Goods and services and repayment of Debts. This service is generally provided at a cost, referred to as interest on the debt. Interest is a fee paid on borrowed capital Assets lent include Money, Shares, Consumer goods through Hire purchase, major assets Debt is that which is owed usually referencing Assets owed but the term can cover other obligations A borrower may be subject to certain restrictions known as loan covenants under the terms of the loan. A loan covenant is a condition in a commercial Loan or bond issue that requires the borrower to fulfill certain conditions or which forbids the borrower from

Acting as a provider of loans is one of the principal tasks for financial institutions. In Financial economics, a financial institution acts as an agent that provides Financial services for its clients or members For other institutions, issuing of debt contracts such as bonds is a typical source of funding. Debt is that which is owed usually referencing Assets owed but the term can cover other obligations In Finance, a bond is a Debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and Interest Bank loans and credit are one way to increase the money supply. In Economics, money supply, or money stock, is the total amount of money available in an Economy at a particular point in time

Legally, a loan is a contractual promise of a debtor to repay a sum of money in exchange for the promise of a creditor to give another sum of money.

Contents

Types of loans

Secured

A secured loan is a loan in which the borrower pledges some asset (e. A secured loan is a Loan in which the borrower pledges some asset (e g. a car or property) as collateral for the loan. In lending agreements collateral is a borrower's asset that is Forfeited to the lender if the borrower is insolvent—that is unable to pay back the principal and interest on

A mortgage loan is a very common type of debt instrument, used by many individuals to purchase housing. A mortgage loan is a Loan secured by Real property through the use of a Mortgage (a legal instrument In this arrangement, the money is used to purchase the property. The financial institution, however, is given security — a lien on the title to the house — until the mortgage is paid off in full. In Law, a lien is a form of Security interest granted over an item of Property to secure the payment of a Debt or performance of some other If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it. In Finance, default occurs when a debtor has not met its legal obligations according to the debt contract e

In some instances, a loan taken out to purchase a new or used car may be secured by the car, in much the same way as a mortgage is secured by housing. The duration of the loan period is considerably shorter — often corresponding to the useful life of the car. There are two types of auto loans, direct and indirect. A direct auto loan is where a bank gives the loan directly to a consumer. An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the consumer.

A type of loan especially used in limited partnership agreements is the recourse note. A limited partnership is a form of Partnership similar to a General partnership, except that in addition to one or more general partners (GPs there are A recourse note is a Debt note held by a lender that entitles the lender to seek financial recourse upon the default of the borrower

A stock hedge loan is a special type of securities lending whereby the stock of a borrower is hedged by the lender against loss, using options or other hedging strategies to reduce lender risk. In Finance, securities lending or stock lending refers to the lending of securities by one party to another In Finance, a hedge is an investment that is taken out specifically to reduce or cancel out the Risk in another investment

Unsecured

Unsecured loans are monetary loans that are not secured against the borrowers assets. An unsecured loan is a Loan that is not backed by collateral. These may be available from financial institutions under many different guises or marketing packages:

The interest rates applicable to these different forms may vary depending on the lender and the borrower. A credit card is part of a system of Payments named after the small Plastic card issued to users of the system A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money An overdraft occurs when withdrawals from a Bank account exceed the available balance which gives the account a negative balance - a person can be said to have A Corporate Bond is a bond issued by a Corporation. The term is usually applied to longer-term debt instruments generally with a maturity date falling at least a Interest is a fee paid on borrowed capital Assets lent include Money, Shares, Consumer goods through Hire purchase, major assets These may or may not be regulated by law. In the United Kingdom, when applied to individuals, these may come under the Consumer Credit Act 1974. The Consumer Credit Act 1974 is a Consumer protection law in the UK.

Abuses in lending

Predatory lending is one form of abuse in the granting of loans. Predatory lending is a Pejorative term used to describe practices of some Lenders. It usually involves granting a loan in order to put the borrower in a position that one can gain advantage over him or her. Where the moneylender is not authorised, it could be considered a loan shark. A loan shark is a person or body that offers illegal Unsecured loans at high Interest rates to individuals often backed by Blackmail or threats

Usury is a different form of abuse, where the lender charges excessive interest. Usury (ˈjuːʒəri comes from the Medieval Latin usuria, "interest" or "excessive interest" from the Latin usura "interest" In different time periods and cultures the acceptable interest rate has varied, from no interest at all to unlimited interest rates. Credit card companies in some countries have been accused by consumer organisations of lending at usurious interest rates and making money out of frivolous "extra charges". [1]

Abuses can also take place in the form of the customer abusing the lender by not repaying the loan or with an intent to defraud the lender.


United States taxes

Most of the basic rules governing how loans are handled for tax purposes in the United States are uncodified by both Congress (the Internal Revenue Code) and the Treasury Department (Treasury Regulations — another set of rules that interpret the Internal Revenue Code). [2] Yet such rules are universally accepted. [3]

1. A loan is not gross income to the borrower. [4] Since the borrower has the obligation to repay the loan, the borrower has no accession to wealth. [5]

2. The lender may not deduct the amount of the loan. [6] The rationale here is that one asset (the cash) has been converted into a different asset (a promise of repayment). [7] Deductions are not typically available when an outlay serves to create a new or different asset. [8]

3. The amount paid to satisfy the loan obligation is not deductible by the borrower. [9]

4. Repayment of the loan is not gross income to the lender. [10] In effect, the promise of repayment is converted back to cash, with no accession to wealth by the lender. [11]

5. Interest paid to the lender is included in the lender’s gross income. [12] Interest paid represents compensation for the use of the lender’s money or property and thus represents profit or an accession to wealth to the lender. [13] Interest income can be attributed to lenders even if the lender doesn’t charge a minimum amount of interest. [14]

6. Interest paid to the lender may be deductible by the borrower. [15] In general, interest paid in connection with the borrower’s business activity is deductible, while interest paid on personal loans are not deductible. [16] The major exception here is interest paid on a home mortgage. [17]

Income from discharge of indebtedness

Although a loan does not start out as income to the borrower, it becomes income to the borrower if the borrower is discharged of indebtedness. [18] Thus, if a debt is discharged, then the borrower essentially has received income equal to the amount of the indebtedness. The Internal Revenue Code lists “Income from Discharge of Indebtedness” in Section 62(a)(12) as a source of gross income. The Internal Revenue Code (or IRC; more formally the Internal Revenue Code of 1986 as amended) is the main body of domestic statutory Tax law Gross income is commonly defined as the amount of a Company 's or a Person 's income before all deductions or any taxpayer’s income except that which is specifically

Example: X owes Y $50,000. If Y discharges the indebtedness, then X no longer owes Y $50,000. For purposes of calculating income, this should be treated the same way as if Y gave X $50,000.

For a more detailed description of the “discharge of indebtedness”, look at Section 108 (Cancellation of Debt (COD) Income) of the Internal Revenue Code. Taxpayers in the United States may have tax consequences when debt is cancelled The Internal Revenue Code (or IRC; more formally the Internal Revenue Code of 1986 as amended) is the main body of domestic statutory Tax law [19]

See also

References

  1. ^ Credit card holders pay Rs 6,000 cr 'extra' May 03, 2007
  2. ^ Samuel A. The effective interest rate, effective annual interest rate, Annual Equivalent Rate (AER or simply effective rate is the Interest rate on a In Finance, default occurs when a debtor has not met its legal obligations according to the debt contract e An interest-only loan is a Loan in which for a set term the borrower pays only the interest on the Principal balance, with the principal balance unchanged The Free Application for Federal Student Aid (known as the FAFSA) is a form that can be filled out annually by current and anticipating University students (both In the United States both the Federal Family Education Loan Program (FFELP and the Federal Direct Student Loan Program (FDLP include consolidation loans that allow students A Federal Perkins Loan, or Perkins Loan, is a need-based Student loan offered by the U George D Sax ( April 14, 1904 - March 12, 1974) was the Chairman of the board of Exchange International Corporation and Chicago's A loan guarantee is a promise by a government to assume a private debt obligation if the borrower defaults. A loan sale is a Sale, often by a bank under Contract of all or part of the cash stream from a specific Loan, thereby removing the loan A payday loan (also called a paycheck advance or payday advance) is a small short-term Loan that is intended to cover a borrower's expenses until A refund anticipation loan ( RAL) is a high Interest rate short-term Loan secured by a taxpayer’s expected Tax refund, and designed to offer A Stafford Loan is a Student loan offered to eligible students enrolled in accredited American institutions of Higher education to help finance Student loans are loans offered to students to assist in payment of the costs of professional Education. A syndicated loan (or "syndicated bank facility" is a large Loan in which a group of banks provide funds for a borrower usually several but without joint liability A car title loan, or simply title loan, is a Loan where the Borrower provides their car as Collateral. Events 1491 - Kongo monarch Nkuwu Nzinga is baptised by Portuguese missionaries adopting the baptismal name of João Year 2007 ( MMVII) was a Common year starting on Monday of the Gregorian calendar in the 21st century. Donaldson, Federal Income Taxation of Individuals: Cases, Problems and Materials, 2nd Ed. 111 (2007).
  3. ^ Id.
  4. ^ Id.
  5. ^ Id. See Commissioner v. Glenshaw Glass Co. , 348 U. S. 426 (1955)(giving the three-prong standard for what is "income" for tax purposes: (1) accession to wealth, (2) clearly realized, (3) over which the taxpayer has complete dominion).
  6. ^ Donaldson, at 111.
  7. ^ Id.
  8. ^ Id.
  9. ^ Id.
  10. ^ Id.
  11. ^ Id.
  12. ^ Id. ; 26 U. S. C. 61(a)(4)(2007).
  13. ^ Id.
  14. ^ Id. at 112.
  15. ^ Id.
  16. ^ Id.
  17. ^ Id.
  18. ^ Id. ; 26 U. S. C. 61(a)(12)(2007).
  19. ^ Id. ; 26 U. S. C. 108(2007).

Dictionary

loan

-noun

  1. A sum of money or other valuables or consideration which an individual, group or other legal entity borrows from another individual, group or legal entity (the latter often being a financial institution) with the condition that it be returned or repaid at a later date (sometimes with interest). Occasionally collateral is required to assure that the borrower repays his or her debt or returns the consideration thus loaned. Most loans require some sort of positive (or at least a lack of negative) credit to be established by the borrower first.
  2. The contract and array of legal and/or ethical obligations surrounding a loan. He made a payment on his loan.
  3. The permission to borrow any item.

-verb

  1. (US) To lend. This usage is confined to the US (or perhaps parts thereof) and elsewhere is ungrammatical (loan being the noun, and lend the verb).
© 2009 citizendia.org; parts available under the terms of GNU Free Documentation License, from http://en.wikipedia.org
 Dapyx Software network: MP3 Explorer | Ebook Manager | Zenithic