What is a loan?

A loan is a type of credit acquired by an individual or company. When a company or the State itself has high needs for finance or liquidity, the necessary amount is divided by issuing a series of securities or loans. They are known as loans. All loans issued for financing have the same configuration, value and amount. As well as, the same expiration period.

The individuals or companies that acquire these loans will obtain remunerative interest in exchange. While the entity that issues the loan title undertakes to pay this interest plus the return of the principal within a previously agreed period of time. In many cases, the loans are also called fixed income securities.

Participants in a loan

Three agents participate in the issuance, sale and acquisition of a loan:

  • The issuer or borrower which is the one that issues the loan securities.
  • The lender who is the one who acquires the loan title.
  • Un financial intermediary, which will be responsible for coordinating the issuer and the lender in the management of the loan.

Parts of the loan

The loan is made up of the following concepts:

  • Nominal value. It is the value of the title on which interest is paid.
  • Effective value. It is the value of the security in the market at a certain moment.
  • Issuance value. It is the value of the security at the time of issue.
  • Refund value. It is the value for which the loan will be returned when it is time for repayment

Types of loans

Within the financial market we can find the following types of loans.

  • Obligations with periodic payment. Those in which an interest settlement occurs on a regular basis.
  • Obligations without periodic payment. When the payment of interest occurs in parallel to the amortization of the loan.

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