When making a large purchase, such as a home or automobile, it is usually necessary to take out a loan. You have many options when considering a purchase loan, but all of them will put you into debt. Debt is sometimes unavoidable, but by approaching a loan intelligently you can avoid long term hardship. When taking out a loan, you will receive a certain amount of money from the lender (usually a bank or lending agency) which you will have to pay back. Paying off a loan is usually done in monthly installments, although there is a catch. You will have to pay interest on the money you take out, this is the cost of borrowing money. Interest can be very expensive, so it is extremely important that you carefully examine your options when approaching a loan so as to not overpay in interest. There are two types of loans. In a secured loan, the debtor will offer an item such as a house or car as collateral, which the lender will take if the debtor does not make his payments. A mortgage is a common loan in which the debtor receives money to purchase property while the lender receives a lien on the title to the house. The debtor will then make payments on the mortgage in regular installments, paying interest as usual. Once the mortgage is paid, the lender releases full ownership to the debtor. The other common type of loan is an unsecured loan; an unsecured loan is a loan NOT weighed against assets of the debtor does not have to offer collateral. Common types of unsecured loans include credit cards, personal loans, corporate bonds and bank overdraft. As you can see, loans have the potential to help or hurt you, it is all about how you approach them.