As people think, the term “cash advance” is strongly associated with interest-free loans. Currently, interest-free loans are issued to military personnel for the purchase of housing on a long-term installment plan, employers lend money to their employees for various purposes free of charge, entrepreneurs receive subsidies for the development of small businesses from the state, etc. In reality, the concept of a loan is much broader, but at the same time, this word has a very “narrow” meaning.
What is cash advance?
The concept of a loan in the “narrow” sense is enshrined in the civil legislation as free use. Its first clause defines a loan agreement as a contract of royalty-free use. According to this clause, one party undertakes to transfer the thing for free temporary use to the other party, and the latter undertakes to return the same thing in the state it has received, subject to normal wear and tear or in a state stipulated by the contract. The giver is here called the lender, and the receiver of the thing is called the borrower.
Remember: the thing is transferred free of charge, and the borrower gets the right to use this thing (and not keep it) and the obligation to return it in good state. These are the essential features of a loan agreement.
Under the loan agreement, natural objects (for example, plots of land), equipment, vehicles, buildings, structures – things that do not lose their natural (consumer) properties during their use, can be transferred for free use. They are also called non-consumable things, i.e. their depreciation (wear) occurs gradually over a long time.
Accordingly, the relationship between the lender and the borrower is regulated by legal regulations. We will pay attention only to the fact that money in itself, in the narrow sense of a loan, is not things that can be transferred under a loan agreement.
It will be interesting for us to consider this term in a broader sense, in which it is often mentioned. In this regard, under a loan it is customary to understand any things, including money, which one party donates for temporary use to the other. An important term of the loan agreement is that it is free of charge. But when a reward is implied for the use of a thing or money, then such an agreement is already considered a lease, hire, loan, or credit agreement.
People often misconcept a loan and a cash advance. That is, a loan is called any loan that not quite right. This can be called an interest-free loan, but certainly not any loan. We will close our eyes to these nuances and will talk about a loan as a transfer by one person of something to another person for a fee.
There are the following types of loans:
- property loan;
- bank loan;
- consumer credit.
A property loan agreement implies the transfer for temporary use:
- land plots;
- real estate;
- transport, etc.
At the same time, it is important to understand that only the right to use the property is transferred to the borrower, but not ownership and disposal. And some things (natural objects or land) can be transferred under a loan agreement with restrictions established by law.
The lender must transfer the item in a state in which the other party can use it freely, that is, without defects of varying complexity. In addition, along with the loaned item, the necessary documents (instructions, technical passport, etc.), as well as the entire set of devices, without which the use of the item will become defective or, in general, impossible, must be transferred. If these terms are not met, the borrower has the right to ask for the contract termination.
When signing this type of transaction, the receiving party undertakes to use the subject of the loan in full accordance with its purpose, ensure its safety and not transfer it to third parties. After the expiration of the period established by the agreement, the borrower will have to return (important!) the same thing. Not an analog, but exactly what they took. Moreover, the wear and tear of returned items should not go beyond the natural.
The term of the loan agreement may not have strict time limits.
This type of loan relates exclusively to cash loans. Under the concept of a bank loan, two inextricably linked processes are combined:
- lending money on certain terms and for a strictly agreed period;
- a set of different measures and procedures, which together constitute the procedure for the interaction of a banking institution with clients regarding the provision of funds in debt (in other words, meeting the financial need declared by the borrower).
All bank loans are classified into:
- active – when the bank itself lends money and is a creditor;
- passive – in cases when the bank itself borrows money for current needs and is a borrower (interbank lending).
In addition, bank loans are divided into many types according to various criteria:
- method and period of cancellation;
- the purpose of its use;
- the form of the loan;
- the method of calculating and collecting interest on the loan;
- the size of the interest rate;
- the method of providing the loan;
- availability of collateral;
- categories of borrowers.
Consumer or personal loan
This is a purely cash loan that is issued to citizens and can be used to pay for necessary purchases. Such loans are issued in the form:
- bank loans for urgent needs;
- credit card;
- purchase of goods by installments;
- car loans, etc.
A distinctive feature of a consumer (personal) loan is the payment of remuneration for the use of borrowed money. Such remuneration includes an annual interest rate and various fees and commissions that increase the final amount of debt.
Consumer loans are classified into:
- Target and non-target. The first type includes lending for a specific purchase (car, land, real estate), the second – loans we are used to for everyday needs.
- Secured and unsecured. The term “security” here means a pledge of securities or property (movable or immovable), as well as surety of individuals.
- Short-term (up to 1 year), long-term (over 5 years) and medium-term (intermediate link).
- Bank and non-bank lending, which directly depends on the status of the lender (for example, microfinance organizations are not banks).