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- Financial Dictionary
In banking terminology, the term Loan refers to the situation in which a lender, usually a financial institution like a bank, provides funds to a borrower who is expected to repay that money according to some agreed upon schedule. A bank Loan also generally carries a rate of interest that the borrower is expected to pay in addition to the principal.
For example, a person might require a mortgage Loan from their bank to purchase their home. In return for providing the funding for the purchase, the lender will obtain a security interest or lien on the property will then be used as collateral or security for the loan’s repayment. This lien is recorded in the register of title documents and made public information, but will be voided upon full payment of the Loan on the property. Payments on the Loan will be made in pre-determined monthly payments until the Loan is fully paid off or the home is sold and repayment made out of escrow. A mortgage consists of a secured Loan because the property itself is put up as collateral. Some banks also offer unsecured Loans, and credit card spending tends to fall into this latter category.
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