Text 10. What Is a Loan?

A loan is a type of debt. This article focuses exclusively on monetary loans, although, in practice, any material object might be lent. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.

The borrower initially does receive an amount of money from the lender, which they pay back, usually but not always in regular installments, to the lender. This service is generally provided at a cost, referred to as interest on the debt. A loan is of the annuity type if the amount paid periodically (for paying off and interest together) is fixed.

A borrower may be subject to certain restrictions known as loan covenants under the terms of the loan.

Acting as a provider of loans is one of the principal tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is a typical source of funding. Bank loans and credit are one way to increase the money supply.

Legally, a loan is a contractual promise of a debtor to repay a sum of money in exchange for the promise of a creditor to give another sum of money.

Types of loan

A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan.

A mortgage loan is a very common type of debt instrument, used by many individuals to purchase housing. In this arrangement, the money is used to purchase the property. The financial institution, however, is given security — a lien on the title to the house — until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it.

In some instances, a loan taken out to purchase a new or used car may be secured by the car, in much the same way as a mortgage is secured by housing. The duration of the loan period is considerably shorter — often corresponding to the useful life of the car. There are two types of auto loans, direct and indirect. A direct auto loan is where a bank gives the loan directly to a consumer. An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the consumer.

A type of loan especially used in limited partnership agreements is the recourse note.

Unsecured loans are monetary loans that are not secured against the borrowers assets. These may be available from financial institutions under many different guises or marketing packages:

-credit card debt;

-personal loans;

-bank overdrafts;

-credit facilities or lines of credit;

-corporate bonds.

The interest rates applicable to these different forms may vary depending on the lender and the borrower. These may or may not be regulated by law.

Exercise 78. Translate into English.

Грошова позика, кредитор, позичальник, регулярні часткові платежі, збільшувати грошову масу, виплачувати, забезпечена позика, незабезпечена позика, іпотечний кредит, борговий інструмент, купувати житло, право затримання майна до сплати боргу.

Exercise 79 .Answer the questions.

1. What is a loan? 2. What do the words “borrower”, “lender”, “debtor” mean? 3. What types of loan can you name? Describe their main features. 4. What is the difference between secured and unsecured loans? 5. What is “collateral”?

Exercise 80. Translate the sentences into English.

1. Позика – це тип боргу, який спричиняє перерозподіл фінансових активів між кредитором і позичальником протягом певного часу. 2. Зазвичай позичальник отримує від кредитора суму грошей, яку він повертає частковими платежами. 3. Надавати позики - одне з головних завдань фінансових установ. 4. Банківські позики та кредити є одним з шляхів збільшення грошової маси в обігу. 5. Забезпечений кредит – це позика, при якій позичальник віддає в заставу певний актив (наприклад, автомобіль чи нерухомість) в якості гарантії щодо позички. 6. Іпотечний кредит є дуже поширеним типом боргового інструменту, який використовується для купівлі нерухомого майна. 7. Якщо позичальник не сплачує іпотечний кредит, банк має законне право отримати будинок і продати його для того, щоб повернути заборговану суму. 8. Існує два типи автомобільних кредитів - прямі та непрямі. 9. Кредит, що спеціально використовується в угодах про створення компанії з обмеженою відповідальністю, називається векселем з правом регресу. 10. Незабезпечені кредити – це грошові позики, які не гарантуються активами позичальника.

Exercise 81. Read the letter-request for a loan and answer the questions below.

Dear Mr Evans I would like to make an appointment with you to discuss an overdraft or a loan to enable me to expand my business. I have been testing the market with a new line of furniture assembly kits, and have found that demand for these kits has exceeded my expectations. In the past six month alone I have had orders over $60,000 worth in orders, half of which I have been unable to fulfill because of my limited resources. I would need a loan for about $18,000 to buy additional equipment and raw materials. I can offer $8,000 in ordinary shares, and $3,000 in local government bonds as part security. I estimate it would take me about nine months to repay the loan of this size. I enclose an audited copy of the company’s balance sheet, which I imagine you will wish to inspect prior to our meeting. I look forward to hearing from you. Yours sincerely Richard Cliff Director

1. Why does Mr Cliff need a loan or an overdraft?

2. What new line does he want to put on the market?

3. What security does he offer?

4. What evidence does he offer to show his company is in a healthy state?

5. What is a balance sheet?

Exercise 82. Answer the questions in pairs.

Have you ever taken a loan from the bank? Why?

Exercise 83. Learn the following words and word combinations.

high street bank	провідний банк (з великою кількістю відділень)
transfer money	переказувати гроші
check clearing	чекові взаєморозрахунки між банками
recipient	одержувач
streamlined	добре налагоджений; модернізований
honor	акцептувати , оплачувати (простий вексель, чек)
draw a check	виписувати чек
draft	чек, тратта, переказний вексель; сума, одержана за чеком (векселем)

Exercise 84. Read, translate and give the gist of text 11.