HDFC Bank Limited is an Indian banking and financial services company headquartered in Mumbai, Maharashtra. It has 90,421 employees and has a presence in Bahrain, Hong Kong and Dubai. HDFC Bank is India’s second-largest private sector lender by assets. It is the largest bank in India by market capitalization as of February 2016. It was ranked 69th in 2016 BrandZ^TM Top 100 Most Valuable Global Brands.

History

In 1994 HDFC Bank was incorporated, with its registered office in Mumbai, India. Its first corporate office and a full service branch at Sandoz House, Worli was inaugurated by the then Union Finance Minister, Manmohan Singh.

As of December 31, 2016, the Bank’s distribution network was at 4,555 branches and 12,087 ATMs across 2,597 cities / towns .

Products and services

Market leader in e-commerce, HDFC Bank provides a series of digital offerings like - 10 second personal loan, Chillr, PayZapp, SME Bank, Watch Banking, 30-Minute Auto Loan, 15-minute Two-Wheeler Loan, e-payment gateways, Digital Wallet, etc.

HDFC Bank provides a number of products and services which includes Wholesale banking, Retail banking, Treasury, Auto (car) Loans, Two Wheeler Loans, Personal loans, Loan Against Property and Credit Cards.

The latest entry in the league is 'Project AI', under which HDFC Bank, over the next few weeks, would deploy robots at select bank branches. These robots will offer options such as cash withdrawal or deposit, forex, fixed deposits and demat services displaying on the screen to persons coming into the branch.

Acquisitions

HDFC Bank merged with Times Bank in February 2000. This was the first merger of two private banks in the New Generation Private Sector Banks category. In 2008, Centurion Bank was acquired by HDFC Bank. HDFC Bank Board approved the acquisition of CBoP for 95.1 billion INR in one of the largest mergers in the financial sector in India.

Listings and shareholding

The equity shares of HDFC Bank are listed on Bombay Stock Exchange and the National Stock Exchange of India. Its American Depository Shares are listed on NYSE and the Global depository receipt are listed on the Luxembourg Stock Exchange where two GDRs represent one equity share of HDFC Bank..

CSR activities

HDFC Bank has taken several steps as a part of their Corporate Social Responsibility. It has collaborated with several NGOs to assist in its activities.

Awards and recognition

• Best Banking Performer, India in 2016 by Global Brands Magazine Award.

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In Nepal, some units of measurement are still used, although the metric system has been the official standard since 1968.

Land area

The following is a partial list of everyday units used to calculate land area in Nepal.

• 1 Bigha (बिघा) = 20 Kattha (कठ्ठा)
• 1 Bigha (बिघा) = 6772.63 m²
• 1 Bigha (बिघा) = 72900 sq.ft.
• 1 Bigha (बिघा) = 13.31 Ropani
• 1 Katha (कठ्ठा) = 20 Dhur (धुर)
• 1 Katha (कठ्ठा) = 338.63 m²
• 1 Katha (कठ्ठा) = 3645 sq.ft.
• 1 Dhur (धुर) = 16.93 m²
• 1 Dhur (धुर) = 182.25 sq.ft.
• 1 Ropani (रोपनी)= 16 aana (आना)
• 1 Ropani (रोपनी)= 64 Paisa (पैसा)
• 1 Ropani (रोपनी)= 508.72 m²
• 1 Ropani (रोपनी)= 5476 sq.ft.
• 1 Ropani (रोपनी)= 256 Daam (दाम)
• 1 Ropani = 4 Matomuri
• 1 Khetmuri = 25 Ropani
• 1 Aana (आना)= 4 Paisa (पैसा)
• 1 Aana (आना)= 31.80 m²
• 1 Aana (आना) = 342.25 sq. ft.
• 1 Aana (आना) = 16 Daam (दाम)
• 1 Paisa (पैसा) = 4 Daam (दाम)
• 1 Paisa (पैसा) = 7.95 m²
• 1 Paisa (पैसा) = 85.56 sq. ft.
• 1 Daam (दाम) = 1.99 m²
• 1 Daam (दाम) = 21.39 sq. ft.

Length

The kos (kosh, krosh, koss) is a very ancient measure of distance, measuring about 2.25 miles or 3.7 km.

• 1 angul = approx. 0.75 inch
• 4 angul = 1 dharnugrah (bow grip) = 3 in
• 8 angul = 1 dhanurmushti (fist with thumb raised) = 6 in
• 12 angul = 1 vitastaa (span) = 9 in
• 2 vittaa (cubit) = 18 in
• 4 haath = 1 dand or dhanush (bow) = 6 ft
• 2000 dand = 1 kos or Gorut = 4000 yards or 2.25 miles
• 4 kosh = 1 yojan = 9 miles = 14.48 km
• 1 Haath = 1.5 ft.

Area

The units of measurement of area of land depends on the part of the country where they are being used, with the Bigha-Katha-Dhur measurements common in the Terai region while the Ropani-Aana measurements are common in hilly and mountainous regions.

Terai region

In the Terai region, the southern parts of Nepal, the customary units are those used elsewhere in South Asia:

• 1 katha = 20 dhur
• 1 bigha = 20 katha

Hilly and Mountainous regions A different system is used in hilly regions:

• 1 paisa = 4 dam (daam)
• 1 ana = 4 paisa

• 1 ropani = 16 ana

Conversions

• 1 ropani = 74 feet × 74 feet
• 1 bigha = 13 ropani
• 1 kattha = 442 square yards or 338 square meters

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A bridge loan is a type of short-term loan, typically taken out for a period of 2 weeks to 3 years pending the arrangement of larger or longer-term financing. It is usually called a bridging loan in the United Kingdom, also known as a "caveat loan," and also known in some applications as a swing loan. In South African usage, the term bridging finance is more common, but is used in a more restricted sense than is common elsewhere.

A bridge loan is interim financing for an individual or business until permanent financing or the next stage of financing is obtained. Money from the new financing is generally used to "take out" (i.e. to pay back) the bridge loan, as well as other capitalization needs.

Bridge loans are typically more expensive than conventional financing, to compensate for the additional risk. Bridge loans typically have a higher interest rate, points (points are essentially fees, 1 point equals 1% of loan amount), and other costs that are amortized over a shorter period, and various fees and other "sweeteners" (such as equity participation by the lender in some loans). The lender also may require cross-collateralization and a lower loan-to-value ratio. On the other hand, they are typically arranged quickly with relatively little documentation.

Real estate

Bridge loans are often used for commercial real estate purchases to quickly close on a property, retrieve real estate from foreclosure, or take advantage of a short-term opportunity in order to secure long-term financing. Bridge loans on a property are typically paid back when the property is sold, refinanced with a traditional lender, the borrower's creditworthiness improves, the property is improved or completed, or there is a specific improvement or change that allows a permanent or subsequent round of mortgage financing to occur. The timing issue may arise from project phases with different cash needs and risk profiles as much as ability to secure funding.

A bridge loan is similar to and overlaps with a hard money loan. Both are non-standard loans obtained due to short-term, or unusual, circumstances. The difference is that hard money refers to the lending source, usually an individual, investment pool, or private company that is not a bank in the business of making high risk, high interest loans, whereas a bridge loan is a short term loan that "bridges the gap" between longer term loans.

Characteristics

For typical terms of up to 12 months 2â€"4 points may be charged. Loan-to-value (LTV) ratios generally do not exceed 65% for commercial properties, or 80% for residential properties, based on appraised value.

A bridge loan may be closed, meaning it is available for a predetermined time frame, or open in that there is no fixed payoff date (although there may be a required payoff after a certain time).

A first charge bridging loan is generally available at a higher LTV than a second charge bridging loan due to the lower level of risk involved, many UK lenders will steer clear of second charge lending altogether.

Lower LTV's may also attract lower rates again representing the lower level of underwriting risk although front-end fees, lenders legal fees, and valuation payments may remain fixed.

Examples

• A bridge loan is often obtained by developers to carry a project while permit approval is sought. Because there is no guarantee the project will happen, the loan might be at a high interest rate and from a specialized lending source that will accept the risk. Once the project is fully entitled, it becomes eligible for loans from more conventional sources that are at lower-interest, for a longer term, and in a greater amount. A construction loan would then be obtained to take out the bridge loan and fund completion of the project.
• A consumer is purchasing a new residence and plans to make a down payment with the proceeds from the sale of a currently owned home. The currently owned home will not close until after the close of the new residence. A bridge loan allows the buyer to take equity out of the current home and use it as down payment on the new residence, with the expectation that the current home will close within a short time frame and the bridge loan will be repaid.
• A bridging loan can be used by a business to ensure continued smooth operation during a time when for example one senior partner wishes to leave whilst another wishes to continue the business. The bridging loan could be made based on the value of the company premises allowing funds to be raised via other sources for example a management buy in.
• A property may be offered at a discount if the purchaser can complete quickly with the discount offsetting the costs of the short term bridging loan used to complete. In auction property purchases where the purchaser has only 14â€"28 days to complete long term lending such as a buy to let mortgage may not be viable in that time frame whereas a bridging loan would be.

Corporate finance

Bridge loans are used in venture capital and other corporate finance for several purposes:

• To inject small amounts of cash to carry a company so that it does not run out of cash between successive major private equity financings
• To carry distressed companies while searching for an acquirer or larger investor (in which case the lender often obtains a substantial equity position in connection with the loan)
• As a final debt financing to carry the company through the immediate period before an initial public offering or an acquisition.

South Africa

In South African law immovable property is transferred via a system of registration in public registries known as Deeds Offices. Given the delays resulting from the transfer process, many participants in property transactions require access to funds which will otherwise only become available on the day that the transaction is registered in the relevant Deeds Office.

Bridging finance companies provide finance that creates a bridge between the participant's immediate cash flow requirement and the eventual entitlement to funds on registration in the Deeds Office. Bridging finance is typically not provided by banks.

Various forms of bridging finance are available, depending on the participant in the property transaction that requires finance. Sellers of fixed property can bridge sales proceeds, estate agents bridge estate agents' commission, and mortgagors bridge the proceeds of further or switch bonds. Bridging finance is also available to settle outstanding property taxes or municipal accounts or to pay transfer duties.

United Kingdom

History

Formerly a specialist product, bridging loans have become more popular in the United Kingdom since the 2008â€"2009 global recession, with gross lending more than doubling from £0.8 billion in the year to March 2011 to £2.2 billion in the year to June 2014. This coincided with a marked decline in mainstream mortgage lending in the same period, as banks and building societies grew more reluctant to grant home loans. The overall value of the residential loan amounts outstanding in Q1 2016 was £1,304.5billion, an increase of 1.0% compared with Q4 2015 and an increase of 3.4% over the past four quarters.

As the popularity of bridging loans increased, so too did the controversy around them. In 2011, the Financial Services Authority (FSA) warned homebuyers against using bridging loans as substitutes for ordinary mortgages, expressing fears that some mortgage brokers might be misrepresenting their suitability.

Since 2011, the bridging market has been monitored by the West One Bridging Index, and has seen a consistent increase in popularity and prevalence coinciding with a consistent drop in average monthly interest rates.

Usage

In the United Kingdom, bridging loans are used in both business and real estate. In the former, they are typically used to free equity in order to boost cash flow. In the latter, they are used by home-movers to ‘break’ property chains by providing a short-term source of finance when there is a delay between sale and completion dates, by buyers bidding on property at auction, and by landlords and property developers to secure renovation finance for quick sale or to refurbish a property that is considered uninhabitable prior to obtaining ordinary mortgage finance.

Characteristics

Bridging loans can be secured as a first or second charge against real property, including commercial real estate, buy-to-let property, dilapidated property and land or building plots. Loan terms typically run up to 18 months, with compound interest charged monthly; as such, they are often more expensive than other types of secured home loan.

Bridging loans are defined as either ‘opened’ or ‘closed’. A loan is closed if the borrower has a clear and credible repayment plan or exit strategy in place, such as the sale of the loan security or longer-term finance. Open bridging loans are riskier to both the borrower and creditor due to the greater likelihood of default.

Regulation

Bridging loans secured by first charge against a property in which the borrower or a close family member will reside are considered regulated mortgage contracts, and are therefore regulated by the Financial Conduct Authority (FCA). Bridging loans sold to landlords and property developers are generally not regulated; however, if the occupant of the rental property against which the loan is secured is or will be a close family member of the borrower, FCA regulation will still apply.

An exception currently exists in the case of mixed-use properties, where the borrower or a close relative will occupy less than 40% of the property. In March 2016, however, the UK will be forced to bring its existing legislation in line with that of Europe, under the pan-European Mortgage Credit Directive (MCD). As the MCD does not recognise usage thresholds when defining a regulated contract, it is currently unclear whether the ‘40% rule’ will continue to apply.

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A floating interest rate, also known as a variable or adjustable rate, refers to any type of debt instrument, such as a loan, bond, mortgage, or credit, that does not have a fixed rate of interest over the life of the instrument.

Floating interest rates typically change based on a reference rate (a benchmark of any financial factor, such as the Consumer Price Index). One of the most common reference rates to use as the basis for applying floating interest rates is the London Inter-bank Offered Rate, or LIBOR (the rates at which large banks lend to each other).

The rate for such debt will usually be referred to as a spread or margin over the base rate: for example, a five-year loan may be priced at the six-month LIBOR + 2.50%. At the end of each six-month period, the rate for the following period will be based on the LIBOR at that point (the reset date), plus the spread. The basis will be agreed between the borrower and lender, but 1, 3, 6 or 12 month money market rates are commonly used for commercial loans.

Typically, floating rate loans will cost less than fixed rate loans, depending in part on the yield curve. In return for paying a lower loan rate, the borrower takes the interest rate risk: the risk that rates will go up in future. In cases where the yield curve is inverted, the cost of borrowing at floating rates may actually be higher; in most cases, however, lenders require higher rates for longer-term fixed-rate loans, because they are bearing the interest rate risk (risking that the rate will go up, and they will get lower interest income than they would otherwise have had).

Certain types of floating rate loans, particularly mortgages, may have other special features such as interest rate caps, or limits on the maximum interest rate or maximum change in the interest rate that is allowable.

Floating rate loan

In business and finance, a floating rate loan (or a variable or adjustable rate loan) refers to a loan with a floating interest rate. The total rate paid by the customer "floats" in relation to some base rate, to which a spread or margin is added (or more rarely, subtracted). The term of the loan may be substantially longer than the basis from which the floating rate loan is priced; for example, a 25-year mortgage may be priced off the 6-month prime lending rate.

Floating rate loans are common in the banking industry and for large corporate customers. A floating rate mortgage is a mortgage with a floating rate, as opposed to a fixed rate loan.

In many countries, floating rate loans and mortgages are predominant. They may be referred to by different names, such as an adjustable rate mortgage in the United States. In some countries, there may be no special name for this type of loan or mortgage, as floating rate lending may be the norm. For example, in Canada substantially all mortgages are floating rate mortgages; borrowers may choose to "fix" the interest rate for any period between six months and ten years, although the actual term of the loan may be 25 years or more.

Floating rate loans are sometimes referred to as bullet loans, although they are distinct concepts. In a bullet loan, a large payment (the "bullet" or "balloon") is payable at the end of the loan, as opposed to a capital and interest loan, where the payment pattern incorporates level payments throughout the loan,each containing an element of capital, and no bullet payment at the end.A floating rate loan therefore may or may not incorporate a bullet payment.

Example

A customer borrows $25,000 from a bank; the terms of the loan are (six-month) LIBOR + 3.5%. At the time of issuing the loan, the LIBOR rate is 2.5%. For the first six months, the borrower pays the bank 6% annual interest: in this simplified case $750 for six months. At the end of the first six months, the LIBOR rate has risen to 4%; the client will pay 7.5% (or $937.5) for the second half of the year. At the beginning of the second year, the LIBOR rate has now fallen to 1.5%, and the borrowing costs are $625 for the following six months.

Interest rates options can hedge the floating rate loan - for example, an interest rate cap ensures a borrower's future interest cash flows will not exceed a certain predefined level.

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Loan origination is the process by which a borrower applies for a new loan, and a lender processes that application. Origination generally includes all the steps from taking a loan application up to disbursal of funds (or declining the application). Loan servicing covers everything after disbursing the funds until the loan is fully paid off. Loan origination is a specialized version of new account opening for financial services organizations. Certain people and organizations specialize in loan origination. Mortgage brokers and other mortgage originator companies serve as a prominent example.

There are many different types of loans. For more information on loan types, see the loan and consumer lending articles. Steps involved in originating a loan vary by loan type, various kinds of loan risk, regulator, lender policy, and other factors.

Application Process

Applications for loans may be made through several different channels and the length of the application process, from initial application to funding, means that different organizations may use various channels for customer interactions over time. In general, loan applications may be split into three distinct types:

• Agent (branch-based)
• Agent assisted (telephone-based)
• Broker sale (third-party sales agent)
• Self-service

Retail loans and mortgages are typically highly competitive products that may not offer a large margin to their providers, but through high volume sales can be highly profitable. The business model of the individual financial institution and the products they offer therefore affect the decision of which application model they will offer

Agent Assisted (Branch-Based) Loan Application

The typical types of financial services organizations offering loans through the face to face channel have a long-term investment in 'brick and mortar' branches. Typically these are:

• Banks
• Credit Unions
• Building Societies

The appeal to customers of the loan offered directly in branches is the often long-standing relationship that a customer may have with the institution, the appearance of trustworthiness this type of institution has, and the perception that holding a larger portfolio of products with a single organization may lead to better terms. From a bank's standpoint, cross-selling products to current customers offers an effective marketing opportunity, and agents in branches may be trained to handle the sale of many different types of financial products.

In a branch, customers typically sit with a sales agent who will assist the customer in completing the application form, selecting appropriate product options (such as payment terms and rates), collecting required documentation (new account opening compliance requirements must be met at this stage), selecting add-on products (such as Payment protection insurance), and eventually signing a completed application.

Dependent on the institution and product being offered, the application may be completed on a paper application form, or directly into an online application through the agent's desktop system. In either case, this phase of application is mostly concerned with the accurate capture of customer's details, and does not incorporate any of the background decisioning work required to assess the suitability of the customer and the risk of default, or the due diligence that must be performed to mitigate risk of fraud and money laundering activities.

A major complexity for the branch origination channel is making the process simple enough that sales agents can be easily trained to handle many different products, while ensuring that the many due diligence and disclosure requirements of the financial and banking regulators regionally are met.

Many back-office functions of loan origination continue from this point and are described in the Processing section below.

Self-service Loan Application

• Self-service web applications are taken in a variety of ways, and the state of this business has evolved over time
• Print and fax applications or pre-qualification forms. Some financial institutions still use these.
  • Print, write or type data into the form, send it to the financial institution
  • Form fill on the web, print, and send to the financial institution (not much better)
• Web forms filled out and saved by the applicant on the web site, that are then sent to or retrieved by (ostensibly securely) the financial institution
• True web applications with interfaces to a loan origination system on the back end
  • Many of the early solutions had a lot of the same problems as general forms (bad work flows, trying to handle all manner of loan types in one form)
• Wizard-style applications that are very intuitive and don't ask superfluous questions

Jobs the online application should perform:

1. Present required disclosures, comply with various lending regulations)
2. Be compliant with security requirements (such as Multi-Factor Authentication) where applicable.
3. Collect the necessary applicant data
   1. Exactly what is needed varies by loan type. The application should not ask for data the applicant doesn't absolutely have to provide to get to a prequalification decision for the loan type(s) they seek.
   2. The application should pre-fill demographic data if the applicant is an existing client and has logged in.
4. Make it easy, quick, and friendly for the applicant (so they actually complete the application and don't abandon)
5. Get a current credit report
6. Prequalify (auto-decision) the application and return a quick response to the applicant. Typically this would be approved subject to stipulations, referred to the financial institution, declined (many FIs shy away from this preferring to refer any application that can't be automatically pre-approved.)

Processing

Decisioning & credit risk

The mortgage business consists of a few people: the borrower, the lender, and sometimes the mortgage broker. The people that originate the loans are usually the mortgage broker or the lender. Depending if the borrower has credit worthiness, then he/she can be qualified for a loan. The norm qualifying FICO score is not a static number. Lender guidelines and mitigating factors determine this number. Recent changes in the market and industry have made stated income and stated asset loans a thing of the past and full income and asset documentation is now required from the majority of Fannie Mae and Freddie Mac back mortgage securities. Not only does one's credit score affect their qualification, the fact of the matter also lies in the question, "Can I (the borrower) afford this mortgage?" In most cases the borrower can afford their mortgage. However, some borrowers seek to incorporate their unsecured debt into their mortgage (secured debt.) They seek to pay off the deb t that is outstanding in amount. These debts are called "liabilities," these liabilities are calculated into a ratio that lenders use to calculate risk. This ratio is called the "Debt-to-income ratio" (DTI). If the borrower has excessive debt that he/she wishes to pay off, and that ratio from those debts exceeds a limit of DTI, then the borrower has to either pay off a few debts in a later time and pay off just the outstanding debt. When the borrower refinances his/her loan, they can pay off the remainder of the debt.

Example: If the borrower owes $1,500 in credit card payments and has an gross monthly income of $3,000, his DTI ratio would be 50%. But if the borrower owes $1,500 in payments and has a gross monthly income of $2,000, his DTI ratio would be 75%. Both a 50% and 75% DTI ratio would be too high for most lenders, as a DTI ratio of 43% is generally the cutoff for conventional mortgages. All other factors aside, the higher the DTI ratio, the less likely the borrower will be able to afford a monthly payment, hence the more risky it is for the lender.

Pricing, including Risk-based pricing & Relationship based pricing

Pricing policy varies a great deal. While you probably can't influence the pricing policy of a given financial institution, you can:

• Shop around
• Ask for a better rate - some financial institutions will respond to this, some won't
• Price match - many financial institutions will match a rate for a current customer

Pricing is often done in one of these ways. Follow the internal links for more details:

• Everyone pays the same rate. This is an older approach, and most financial institutions no longer use this approach because it causes low risk customers to pay a higher than market rate, while high risk customers get a better rate than they might otherwise get, causing the financial institution to get a lower rate of return on the loan than the risk might imply.
• Risk-based pricing. With this approach, pricing is based on various risk factors including loan to value, credit score, loan term (expected length, usually in months)
• Relationship based pricing is often used to offer a slightly better rate to customers that have a substantial business relationship with the financial institution. This is often a price improvement offered on top of the otherwise computed rate.

Loan Specific Compliance Requirements

Many of the customer identification and due diligence requirements of loan origination are common to new account opening of other financial products.

The following sections describe the specific requirements of loans and mortgages.

Cross Selling, Add-on Selling

• Add-on Credit insurance & debt cancellation
• Credit cross selling
• Up-selling
• Down-selling
• Refinancing
• Loan Recapture

Appraising Collateral

The next step is to have a Real Estate appraiser appraise the borrower's property that he wishes to have the loan against. This is done to prevent fraud of any kind by either the borrower or the mortgage broker. This prevents fraud like "equity stripping" and money embezzlement. The amount that the appraiser from either the borrower's side or the lender's side is the amount that the borrower can loan up to. This amount is divided by the debt that the borrower wants to pay off plus other disbursements (i.e. cash-out, 1st mortgage, 2nd mortgage, etc.) and the appraised value (if a refinance) or purchase price (if a purchase) {which ever amount is lower} and converted into yet another ratio called the Loan to value (LTV) ratio. This ratio determines the type of loan and risk the lender is put up against. For example: if the borrower's house appraises for $415,000 and they wish to refinance for the amount of $373,500 - the LTV ratio would be 90%. The lender also may put a limit to how much the LTV can be - for example, if the borrower's credit is bad, the lender may limit the LTV that the borrower can loan. However, if the borrower's credit is in Good condition, then the lender will most likely not put a restriction on the borrower's LTV. LTV for loans may or may not exceed 100% depending on many factors.

The appraisal would take place on location of the borrower's property. The appraiser may take pictures of the house from many angles and will take notes on how the property looks. He/she will type up an appraisal and submit it to the lender or broker (depending on who ordered the appraisal.) The Appraisal is written in the format compliant to FNMA Form 1004. The 1004 is the standard appraisal form used by appraisers nationwide.

Processing Documents/Loan Underwriting

Document Preparation

Document Preparation or Doc Prep is the process of arranging and preparing the borrowers closing contracts. These documents vary from industry to industry but generally contain a note, disclosures, and other documents describing and detailing the agreement between the borrower and lender.

Mortgage Underwriting

An underwriter is a person who evaluates the loan documentation and determines whether or not the loan complies with the guidelines of the particular mortgage program. It is the underwriter's responsibility to assess the risk of the loan and decide to approve or decline the loan. A processor is the one who gathers and submits the loan documents to the underwriter. Underwriters take at least 48 hours to underwrite the loan and after the borrower signs the package it takes 24 hours for a processor to process the documents.

Funding of Loan

• Booking
• Disbursal of funds

Regulation

Lending is a highly regulated business, at both the Federal and State levels. Some of the main regulations that apply to lending are listed here. For more details, see Bank regulation.

• Truth in lending act (aka Regulation Z)
• Equal Credit Opportunity Act (aka Regulation B)
• Home Mortgage Disclosure Act (HMDA)

Other related topics include:

• Predatory lending
• Usury
• Loan sharking

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In finance, a loan is the lending of money from one individual, organization or entity to another individual, organization or entity. A loan is a debt provided by an entity (organization or individual) to another entity at an interest rate, and evidenced by a promissory note which specifies, among other things, the principal amount of money borrowed, the interest rate the lender is charging, and date of repayment. A loan entails the reallocation of the subject asset(s) for a period of time, between the lender and the borrower.

In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time.

The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions known as loan covenants. Although this article focuses on monetary loans, in practice any material object might be lent.

Acting as a provider of loans is one of the principal tasks for financial institutions such as banks and credit card companies. For other institutions, issuing of debt contracts such as bonds is a typical source of funding.

Types

Secured

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

A mortgage loan is a very common type of loan, used by many individuals to purchase things. In this arrangement, the money is used to purchase the property. The financial institution, however, is given security â€" a lien on the title to the house â€" 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 â€" 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.

Unsecured

Unsecured loans are monetary loans that are not secured against the borrower's 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 (may be secured or unsecured)
• peer-to-peer lending

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. In the United Kingdom, when applied to individuals, these may come under the Consumer Credit Act 1974.

Interest rates on unsecured loans are nearly always higher than for secured loans, because an unsecured lender's options for recourse against the borrower in the event of default are severely limited. An unsecured lender must sue the borrower, obtain a money judgment for breach of contract, and then pursue execution of the judgment against the borrower's unencumbered assets (that is, the ones not already pledged to secured lenders). In insolvency proceedings, secured lenders traditionally have priority over unsecured lenders when a court divides up the borrower's assets. Thus, a higher interest rate reflects the additional risk that in the event of insolvency, the debt may be uncollectible.

Demand

Demand loans are short term loans that are typically in that they do not have fixed dates for repayment and carry a floating interest rate which varies according to the prime lending rate. They can be "called" for repayment by the lending institution at any time. Demand loans may be unsecured or secured.

Subsidized

A subsidized loan is a loan on which the interest is reduced by an explicit or hidden subsidy. In the context of college loans in the United States, it refers to a loan on which no interest is accrued while a student remains enrolled in education.

Concessional

A concessional loan, sometimes called a "soft loan", is granted on terms substantially more generous than market loans either through below-market interest rates, by grace periods or a combination of both. Such loans may be made by foreign governments to developing countries or may be offered to employees of lending institutions as an employee benefit.

Target markets

Personal

Loans can also be subcategorized according to whether the debtor is an individual person (consumer) or a business. Common personal loans include mortgage loans, car loans, home equity lines of credit, credit cards, installment loans and payday loans. The credit score of the borrower is a major component in and underwriting and interest rates (APR) of these loans. The monthly payments of personal loans can be decreased by selecting longer payment terms, but overall interest paid increases as well. For car loans in the U.S., the average term was about 60 months in 2009.

Commercial

Loans to businesses are similar to the above, but also include commercial mortgages and corporate bonds. Underwriting is not based upon credit score but rather credit rating.

Loan payment

The most typical loan payment type is the fully amortizing payment in which each monthly rate has the same value over time.

The fixed monthly payment P for a loan of L for n months and a monthly interest rate c is:

${\displaystyle P=L\cdot {\frac {c\,(1+c)^{n}}{(1+c)^{n}-1}}}$

For more information see "Monthly loan or mortgage payments" under compound interest.

Abuses in lending

Predatory lending is one form of abuse in the granting of loans. It usually involves granting a loan in order to put the borrower in a position that one can gain advantage over him or her. Where the moneylender is not authorized, they could be considered a loan shark.

Usury is a different form of abuse, where the lender charges excessive interest. In different time periods and cultures the acceptable interest rate has varied, from no interest at all to unlimited interest rates. Credit card companies in some countries have been accused by consumer organizations of lending at usurious interest rates and making money out of frivolous "extra charges".

Abuses can also take place in the form of the customer abusing the lender by not repaying the loan or with an intent to defraud the lender.

United States taxes

Most of the basic rules governing how loans are handled for tax purposes in the United States are codified by both Congress (the Internal Revenue Code) and the Treasury Department (Treasury Regulations â€" another set of rules that interpret the Internal Revenue Code).

1. A loan is not gross income to the borrower. Since the borrower has the obligation to repay the loan, the borrower has no accession to wealth.

2. The lender may not deduct (from own gross income) the amount of the loan. The rationale here is that one asset (the cash) has been converted into a different asset (a promise of repayment). Deductions are not typically available when an outlay serves to create a new or different asset.

3. The amount paid to satisfy the loan obligation is not deductible (from own gross income) by the borrower.

4. Repayment of the loan is not gross income to the lender. In effect, the promise of repayment is converted back to cash, with no accession to wealth by the lender.

5. Interest paid to the lender is included in the lender’s gross income. Interest paid represents compensation for the use of the lender’s money or property and thus represents profit or an accession to wealth to the lender. Interest income can be attributed to lenders even if the lender doesn’t charge a minimum amount of interest.

6. Interest paid to the lender may be deductible by the borrower. In general, interest paid in connection with the borrower’s business activity is deductible, while interest paid on personal loans are not deductible.The major exception here is interest paid on a home mortgage.

Income from discharge of indebtedness

Although a loan does not start out as income to the borrower, it becomes income to the borrower if the borrower is discharged of indebtedness. Thus, if a debt is discharged, then the borrower essentially has received income equal to the amount of the indebtedness. The Internal Revenue Code lists "Income from Discharge of Indebtedness" in Section 61(a)(12) as a source of gross income.

Example: X owes Y $50,000. If Y discharges the indebtedness, then X no longer owes Y $50,000. For purposes of calculating income, this is treated the same way as if Y gave X $50,000.

For a more detailed description of the "discharge of indebtedness", look at Section 108 (Cancellation of Debt (COD) Income) of the Internal Revenue Code.

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