When money is lent to a person or organization, it is said to be a loan; the borrower must abide by the payment terms by signing an agreement before the funds will be released. The true definition would include, services, products or people (like staff) but for the purposes of this piece it is financial arrangements we are concerned with. Loans are required to be paid back and this is normally within a period set at the commencement of the contract; whilst it is possible to make 3 or 6 monthly repayments, the usual time period is one month.

When debts are repaid a charge is added to the sum owed called ‘interest\' which is how the lender can gain from the service he has provided. Although not seen as much these days one type of financial agreement ensures that the first payments made to clear the debt are in fact just the charges on the sum owed. The more common type of is where the interest charges are added to the capital sum then the total is divided into equal amounts with a small amount of interest being paid each month.

The primary use of a financial institution is to arrange finance but they do have many more functions. Bank loans and credit are one way to increase a person\'s or company\'s money supply; other ways to raise capital are available but none as easy as this.

A mortgage is a very common type of debt and the primary method used by individuals to purchase a house however with this type, the money advance can only be used for the purpose for which it was intended. Debts of this nature are of course much larger than the standard and the lending company requires some security from the borrower; the standard method is by retention of the title to the property until the debt is paid back in full. This is a much more serious type of situation and one where it is actually possible for the bank to foreclose on the loan if the borrower fails to make repayments; they have the option of selling it to reclaim their money or keeping it as an investment.

In some instances, this method of security can be used when taking out a loan for a car for instance; in this instance, the car becomes it\'s own security for the debt. Car loans are generally much shorter as the useful life of a car is correspondingly reduced; in this case money lent for a car will have a relatively short repayment period.

Unsecured loans are much more commonplace although most people do not actually recognize what they are; this can include the credit card, personal arrangements, bank overdrafts and other forms of credit. The interest rates applicable to these different forms may vary depending on the lender, the borrower and the type of credit supplied.

On occasion it is has been known for financial companies to apply direct and indirect pressure for someone to use one of their services so that the company will have a hold over the individual; this type of abuse is known as predatory lending. This type of lending also takes place with credit card companies around the world who issue credit cards with high charges which take a disproportionate amount of time to pay off; even small balances, just to retain a customer. The wise person treads carefully when dealing with financial institutions as they only have one agenda.

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