From ArticleWorld

Loan is a transaction where by money or monetary things are given by one person to another. The person giving loan is called financer or money lender and the person accepting the loan is called loaner. Mainly there are two types of loans. (1) Secured loan (2) unsecured loan.


Secured Loans

The secured loans are always secured by specifically securities like properties, documents, guarantees etc. secured loans are generally given by banks, financial institution have their money lenders. The banks and financial institution have their specified norms of margin money and security margin. The banks and financial institutions decide the rate of interest and period of repayment. Some banks give loan as per security or credit worthiness of the loaner. The banks also consider repayment capacity of the loaner. Thus the banks and financial institution are interested to get money back along with interest rather than to get the security realized in care of default. Because for getting security realized the bank have to pass through long legal procedure and sometimes the securities are not folly recovered or realized.

Unsecured Loans

The secured loans are mostly bearing interest, while unsecured loan may or may not have interest element. The unsecured loans are generally given by the relative or the persons known to the lender of money. The same are given on trust. The unsecured loans are generally given for short period of time, while the secured loans are mainly for long period of time.

Accounting of Loans

From the view paints of the loan received is an liability and shown as secured or unsecured loans on liability side of the balance sheet. On other hand loan given or financed is a current asset and the same is shown other head loans & advances in the balance sheet. In care of secured loans the securities are also mentioned in the balance sheets of the companies.

Kinds of Secured Loans

There are various kinds of secured loans such as mortgage loan, loan against pledge, loan against hypothecation, loans against guarantee, bonds, debenture, cash credit, Books Debts, Bills Discounting etc.

Special Category Loans

Certain loans are of special category. Governments, Charitable trusts, Societies or such other institutions give finance to students or to poor persons for uplift must of the certain sector of persons. Here there is no motive to earn interest income. Securities are also not there in such cares.