Loan – what is it? History, concept, types of loans

All about loan

All about loan

The word loan comes from Latin – credere – and means trust or believe. The very history of loans is inextricably linked to the development of money as a means of payment whose roots go back to antiquity. Everything was initiated by the Phoenicians, an ancient merchant people living in the Mediterranean. It was they who were the first to introduce coins for use. The oldest of these archaeologists was dated back to the 7th century BC.

The invention of coins allowed to replace the original form of money, such as consumption products such as spices or metals in the form of ore, which in turn washed out previously practiced barter (exchange trading). The unification of the measures and weights of ores, which the production of coins allowed, has become a milestone in the development of purchase and sale transactions, and thus the emergence of banking systems and the popularisation of loans as a form of borrowing money.

The times of the largest development of banking and credit fall on the period of the seventeenth and nineteenth centuries, where the newly emerging banks supported, with the help of favorable loans, rapidly growing trade with Asian countries and the subsequent industrial revolution.

Nowadays, a loan is an agreement between a bank and a borrower. Under the agreement, the bank provides the borrower with a certain amount, which he undertakes to earmark for a predetermined purpose. In addition, the borrower undertakes to return the amount borrowed, including accrued interest, a loan granting commission and other additional fees in the period provided for that date. Loan repayment usually takes place in monthly installments, and the loan repayment period can range from several months to even several dozen years. The loan agreement must be made in writing.

Nowadays, loans are fully formalized contracts for borrowing money for a specified period of time and their return with pre-defined interest. The development of banking and entrepreneurship has led to the separation of many types of loans, such as:

  • a cash loan
  • mortgage
  • consolidation loan

They differ in terms of the form of security, the conditions of granting or the purpose of the destination, as well as the interest rate.

Every adult citizen has the right to apply for a loan, which is not tantamount to receiving it. The procedure for obtaining a bank loan is often complicated and time-consuming, requires the submission of a credit application and the completion of a number of formalities. Then the bank analyzes the applicant’s creditworthiness and on this basis grants or refuses to grant a loan.

The loan can also be extended to companies and institutions. They can count on the following types of loans:

  • short-term credit in the current account,
  • overdraft,
  • revolving loan,
  • investment loan.