Archive for June, 2009

Banks evolved from the concept of a royal treasure room to a strong room where hired guards watched over valuables. Keeping assets safe was the principal cause.

But the person who came up with the idea of a bank loan – or a bank that loans out money to people for an interest charge, can be credited with the most important inventions of all time.

Today, banks have been synonymous with bank loans. Nearly every individual who has a bank account has a bank loan of some sort. And living up to this reputation, the modern day banks offer loans for every imaginable need or requirement.

All of which comes at a nice interest though! Speaking for myself, my first relationship with a bank was when I opened my first savings account. But it has been the bank loans that have made me dependent on the bank for my survival.

In fact, my first loan was for the purchase of my first new car. After this, I took a home mortgage loan to purchase a condo.

You see, it’s unlikely that anyone has money sitting around to buy a house for cash on the transaction. Most people lack the discipline to save money every month for a house when paying rent; this opens up the next kind of bank loan – the mortgage loan.

These mortgages are usually made with low interest and long repayment terms (it works out nicely for both parties that way), with payment terms that run for 10 to 30 years depending on the loan.

Beyond secured auto and mortgage loans, banks also issue personal loans. These are for consumers to pay for any number of things – ranging from medical emergencies to marriages to vacations. Any time where you need to pay for something suddenly and don’t have the cash on hand is a candidate for this type of loan product.

This type of loan is also sometimes used to buy things like computers and home renovations; basically anything that doesn’t require a significant portion of the borrowers income is a valid target for this kind of loan.

Yes, even a credit card is a bank loan, and is one of the reasons why our society is so mired in debt. This trend for unsecured debt has shown up in other ways with debt consolidation loans – taking out a loan to pay off other loans at higher interest rates or higher monthly payments is a thriving business.

Bank loans issued to individuals for the purpose of housing are probably the vast majority of loans issued by banks. But they may not compare in volume or value to bank loans issued to businesses worldwide.

To give a sense of perspective, the total business loans issued are 99.99% of all the debt issued in the world. And are one reason why the financial bailout of the investment banks was such a high priority to Congress.

Without business loans and credit, the vast majority of businesses would collapse. This business loan mentality is what drives the modern financial world.