Bank Loans and Related Accounts
Overview
Loans that banks make to its customers represent a significant portion of the
banks assets.
They also
comprise a significant portion of its
risk
as well.
Loans are examples of
fixed income
instruments.
Loan Types
- Consumer Loans
- Credit Cards
- Auto Loans
- Mortgages
- Commercial Loans
- Construction
- Commercial Real Estate
Terms of a Loan Contract
Terms of a Loan Contract
refers to the contractual obligations of the parties of the loan and may include provisions such as
- Length (term) - the maturity of the loan, that is the date by which the principal is contractually
obligated to have been paid off.
- Recourse and Collateral - terms that specify the options available to a bank in the case that
the obligor defaults, including whether the loan requires collateral to be posted and when.
- Pre-payment - terms that dictate if the obligor can prepay the loan and what the penalties
are, if any, in such a case.
- Payment Structure - timing of interest and principal payments.
Accounting Treatment
