How Loans Work

StarBuzz Weekly, Toronto-Author: Sofia Britts - Loaning is a financial process wherein a certain amount of money is borrowed from a financial establishment through various ways. The borrowed money also known as principal would be paid eventually on an agreed date, also known as the maturity date. If not paid until then, a penalty, called accrued interest, would be charged to the borrowers. Of course, financial companies profit from these transactions because of the interest paid by the borrower.
The interest is the amount of extra amount of money you need to pay aside from the amount you borrowed. The interest basically serves as payment for the money lending service offered by the loaning company. Loans are good options when people are suffering from financial crisis.
 Those who are in urgent need of money can apply for a loan. While there are numerous ways of receiving loan money, there are several ways of paying them back as well.
One option of repaying loaning companies is by paying them with hard cash. Going to a loaning site and paying them in cash is the most traditional method of paying, while giving them postdated checks is also an alternative. Enclosed in the check is the exact amount of payment (including interest), complete with the borrower’s signature, so the company can withdraw funds on the maturity date even without his or her presence.

There are two main types of loaning: secured and unsecured loaning. Unsecured loaning refers to loans without holding any of the borrower’s personal property as collaterals. Unsecured loaning includes payday loans, which is a kind of loaning.

Payday loans or cash advances are short-term loaning systems wherein the borrowed money should be paid on the mortgagors next payday. Like any other loaning types, cash advances give rollover policies if ever a borrower fails to pay his or her debt on the agreed date.
Aside from payday loans, there are other unsecured loans that have larger interests compared to secured loans. In contrast, secured loans got to have the benefit of having collaterals in case their clients don’t reimburse the amount of currency they requested from the company. Collaterals are tangible objects claimed by the company when borrowers fail to pay on time.
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