Loan

A loan is simply a form of debt. The loan is the amount of money lent to the borrower which has to be paid back to the loan lender with interest. When you want to buy a car for example, and you don't have sufficient funds to pay for it with cash, you need to finance your car purchase by getting a loan from Canadian bank or financial institution. The bank will give you a car loan, and you have to repay the principal of the loan on pre-determined intervals during the life of the loan. Your loan agreement will also state what interest you will be paying on the loan, which is essentially the cost of the loan.

Depending on the purpose of the loan there are many different loan types. For example you can get a mortgage loan, car loan, home equity loan, student loan, payday loan, personal line of credit, etc.

A loan can be secured or unsecured. A secured loan is a loan that is backed by collateral like a real estate property, car or other tangible asset. In case of default of the borrower the lender can sell the collateral to cover part or all of his losses. A classic example of a secured loan is the home mortgage loan. In this case the house you buy is used as collateral. Auto loans are usually secured by the vehicle you buy.

Unsecured loans on the other hand are not secured by an asset. Examples of such loans are lines of credit, personal loans, credit cards and in most cases student loans.

When getting a loan always read your loan contract and make sure that you understand it. You have to be aware of the real cost of the loan, which includes the interest you will be paying, any fees associated with the loan. Make sure that you are aware of any conditions which will change the terms of your loan (late payments, early repayments, etc.).

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