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Questions about Loan

Short answers, pulled from the story.

What is the difference between a secured loan and an unsecured loan?

A secured loan requires the borrower to pledge an asset, such as a house or car, as collateral; if the borrower defaults, the lender can seize and sell that asset. An unsecured loan has no such collateral, so lenders charge higher interest rates to compensate for the greater risk of loss in the event of default.

What is a concessional loan and who offers them?

A concessional loan, also called a soft loan, is granted on terms more generous than the open market would provide, such as below-market interest rates or grace periods. They are offered by foreign governments to developing countries, or by lending institutions to their own employees as a workplace benefit.

How does a subsidized loan work for college students in the United States?

A subsidized college loan in the United States is one on which no interest accrues while the student remains enrolled in education. The reduction in interest represents the explicit or hidden subsidy that distinguishes it from a standard loan.

What is a bridge loan and when would someone use one?

A bridge loan is a short-term loan used to cover the gap between purchasing a new asset and selling an existing one. Borrowers typically use one when they need to buy a new home before their current home has sold; the loan requires collateral and carries higher interest rates.

Is a loan considered taxable income in the United States?

A loan is not gross income to the borrower in the United States, because the borrower has an obligation to repay it and therefore gains no net wealth. However, if a lender discharges the debt, the cancelled amount is treated as income to the borrower under the Internal Revenue Code.

What is predatory lending and what are examples of it?

Predatory lending is a form of lending abuse in which a loan is granted to place the borrower at a disadvantage. Subprime mortgage lending and payday lending are two recognised examples; when the lender is unregulated, the practice can constitute loan sharking.