Loan Abuses

Predatory lending is one form of abuse in the granting of loans. 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 authorized, they could be considered a loan shark.

Usury is a different form of abuse, where the lender charges excessive 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 organizations of lending at usurious interest rates and making money out of frivolous "extra charges".

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.

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Loan Payment

The most typical loan payment type is the fully amortizing payment in which each monthly rate has the same value over time.

The fixed monthly payment P for a loan of L for n months and a monthly interest rate c is:

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Commercial Loan Market

Loans to businesses are similar to the above, but also include commercial mortgages and corporate bonds. Underwriting is not based upon credit score but rather credit rating.

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Personal Loan Market

Loans can also be subcategorized according to whether the debtor is an individual person (consumer) or a business. Common personal loans include mortgage loans, car loans, home equity lines of credit, credit cards, installment loans and payday loans. The credit score of the borrower is a major component in and underwriting and interest rates (APR) of these loans. The monthly payments of personal loans can be decreased by selecting longer payment terms, but overall interest paid increases as well. For car loans in the U.S., the average term was about 60 months in 2009.

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Concessional Loan

A concessional loan, sometimes called a "soft loan," is granted on terms substantially more generous than market loans either through below-market interest rates, by grace periods or a combination of both.[3] Such loans may be made by foreign governments to developing countries or may be offered to employees of lending institutions as an employee benefit.

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Subsidized Loan

A subsidized loan is a loan on which the interest is reduced by an explicit or hidden subsidy. In the context of college loans in the [United States], it refers to a loan on which no interest is accrued while a student remains enrolled in education.

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Demand Loans

Demand loans are short term loans that are atypical in that they do not have fixed dates for repayment and carry a floating interest rate which varies according to the prime lending rate. They can be "called" for repayment by the lending institution at any time. Demand loans may be unsecured or secured.

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