2.1.4 Loans

In addition to keeping your money in a financial institution, you may also be able to borrow money. Financial institutions lend the money that people deposit and charge interest to the borrowers. Common types of loans are:

• Mortgages: Loans, usually for buying a home or property, in which the lender can take possession of the property if you default on your mortgage payments. Your property is a security or guarantee for the loan.
• Lines of credit: An arrangement that lets you borrow money when you need it (up to a limit) and pay it back when you are able, provided that each month you pay a minimum amount established by the financial institution.
• Credit cards: An arrangement under which a financial institution pays a seller for purchases you make, and you pay the institution back. You pay interest if you don't pay the entire amount on time. (This is different from a debit card: with a debit card, the financial institution takes money directly from your account to pay the seller. With a credit card, the financial institution uses its money to pay the seller, and you later pay it back.)

To take out a loan from a financial institution, you fill out an application that lets the institution judge whether you are able to pay it back on time, based on criteria that it has defined. If it agrees to lend you money, you have to pay it back with added interest. Usually you have to make a payment every week, every two weeks or every month according to what your loan agreement specifies.

For more about borrowing and the cost of loans, see the Credit and debt management module.