On Loans, Lenders And The Scarcity Of Money

Everyone wishes for money to be sufficient in answering all the needs and wants in life

. More often than not, the cash inside your pocket and in your bank account is terribly lacking to cover everything. What is worse is that the need for extra money comes when you least expect it.

The reality of money being insufficient has become the major reason for people to come up with the concept called loans. Loans are debts wherein a lender extends money to a borrower based on a mutual agreement that the latter will be paying the amount within a certain period of time and with interest. Loans vary depending on the amount, the length of time involved and the purpose for which the loan will be used.

Lenders, the ones extending the loans, are classified into two types. Banks and a lot of non-banking financial institutions are called formal lenders. Formal lenders usually extend loans that involve large sums of money, are well-structured and are tailor-made for specific purposes such as auto loans, home mortgage loans and business loans.

On the other hand, other lenders, such as those extending cash advances to employees, are called informal lenders. Unlike formal lenders, the loans being extended by informal lenders are not well-structured and there is not much emphasis on the purposes for which they are to be used. The amounts being loaned by informal lenders to borrowers are good enough to cover the payment of bills, emergency situations and other instances where relatively smaller amounts are needed.

In terms of requirement, there is a lot of difference between formal lenders and informal lenders. Loans coming from formal lenders, prior to being approved, are subject to thorough checks and paperwork, causing the process to be both time- and labor-consuming. Loans coming from informal lenders such as cash advances possess relatively lighter requirements, but lenders tend to charge borrowers with steep interest rates as a form of security.

Loans have become staples of our existence. From small cash advances to huge corporate loans, they are able to temporarily offer a solution to the scarcity of money. Loans have helped establish businesses, finance important human activities, and averted money-related conflicts from exploding.

by: Sofia Britts

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