By Prajanya Raj Rathore 7 Minutes Read

Meaning of the term ‘Loan‘-

‘Loan’ is said to be the amount borrowed from the bank for the purpose of some work, it has to be paid back to the bank with interest and in a stipulated period of time.[1]

Definition of the term ‘Loan‘-

  1. The Usurious Loans Act, 1918[2]Under Section 2(2) of the act term loan has been defined as “Loan” means a loan whether of money or in kind and includes any transaction which is, in the opinion of the Court, in substance a loan. This definition does not give a clear definition of the term loan.
  1. Bombay Money Lenders Act, 1946[3] Under Section 2(9)(g) of the defines the term loan as any sum, by whatsoever name called, in excess of the principal paid or payable to a money – lender in consideration of or otherwise in respect of a loan. This gives a broader dimension to the definition of loan under Usurious Loans Act, 1918 which provides a very ignorant definition to the term loan under the act. The definition under the Bombay Money Lenders Act, 1946 gives us the relationship model between the lender and the person to whom the loan is being lent.

Types of Loan[4]

Loans can be segregated loans into various categories like-

  • Unsecured Personal Loans- These types of loans are granted to the people without any collateral. But the interest of this is very high.
  • Secured Personal Loans- These are offered at a very low rate of interest with collateral being kept as a security. The Interest rates are very low but if the person fails to pay back the loan then the asset which he kept for the collateral will be seized.
  • Fixed rate Personal Loans- Majority of the personal loans are fixed rate loans, they person taking a fixed rate loan have to pay a monthly interest but the Interest rates are highly subjective because the lenders are taking a high risk it can be higher than the normal rate.
  • Variable Interest Loans- It is exactly how it sounds like, there are several rate slabs depending upon the line of credits. Rate of Interest is highly volatile so one should avoid taking this type of loan.
  • Debt Consolidation Loans- One reason people take this loan is to consolidate all the debt relating to the credit card, medical expenses etc. The benefit of taking these loans is that the person becomes eligible for the personal loan depending upon his CIBIL score.

Usages: Indian Judiciary

The case which extracted and relied upon the aforesaid definition was K.I. Suratwala And Co. vs Mahmud Bidi Works Sholapur[5] the court used the excerpt of the Bombay Money Lenders Act, 1946 in defining the term ‘Loan’. As mentioned above the definition of loan has been mentioned in Section 2(9) (g)[6] of the act.

Relation-ship between the lender and the person to whom the loan is lent- The relationship between the person lending the loan and the person to whom the loan is lent can be defined by the case of Surendra  Shekhar v. Lalit Mohan[7] stated that every loan is a debt but every debt is not a loan. Where the defendant has executed a bond in favor of the plaintiff, in consideration of the purchase money due by him to the plaintiff, the defendant is not entitled to any relief under the Act because although the purchase money due to the plaintiff is a debt due to the plaintiff, yet it is not a loan or a transaction which in substance is a loan.

Origin of the word ‘Loan‘-

The origin of the word ‘loan’ can be traced back to its Nordic roots. The loan has been taken from the word in Nordic literature called ‘lan’ which translates into an object which is lent with a promise of return in future, another alternative meaning of the term is a gift from the superior or the gift from the god. The word in the modern sense has been associated with banks and their lending functions.[8]

[1] Cambridge Dictionary,, Cambridge Dictionary, 14/06/2020, 10:00 am

[2] Section 2(2)of the Usurious Loans Act, 1918

[3] Section 2(9)(g) of the Bombay Money Lenders Act, 1946

[4] Pamela Boycoff, What are different types of loans?, Lending Tree,, 14/06/2020 , 11:30 am

[5] K.I. Suratwala And Co. vs Mahmud Bidi Works Sholapur, AIR 1972 Bom 238

[6] Supra 3

[7] Surendra  Shekhar v. Lalit Mohan, AIR 1941 Cal 538-195-1

[8] Etymology online, Definition of loan, Etymology online,, 14/06/2020, 2:00pm

Prajanya Raj Rathore

Just an average guy, who is here to learn and explore new things. With interest in Technology law, Media law, telecommunications law, Criminal law and Environmental law.

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