Loan, an express or implied contract whereby the property of one person is transferred into the possession of another, the borrower undertaking to return the thing or money lent to the owner. The delivery of chattels (movable property) by way of loan or deposit is in English law called a bailment. When goods are thus delivered merely for the convenience of the owner, as in the case of goods kept by a friend without charge, the depository is liable only for gross negligence. If they are delivered merely for the advantage of the bailee, as in the case of a gratuitous loan, the depository is bound to use the strictest diligence. Where the arrangement is for the advantage of both parties, as in the case of furniture hired from a shop, ordinary diligence will suffice.
A loan of money is usually made on an undertaking by the borrower to repay the money lent, and to pay interest thereon. The rate of interest was formerly restricted by the laws against Usury (q.v.), but there is now no law in the United Kingdom to prevent a lender from stipulating for any interest, however exorbitant. A lender has, of course, a right of action against the borrower; but he generally endeavours to secure himself by obtaining some special and easily-enforced right against the debtor and his property. He may, for example, take a bill of exchange or promissory note for the amount, so as to acquire the special rights which the law confers on the holder of a negotiable instrument. Or he may secure himself by obtaining specific rights over some part of the debtor's property. Thus, the debtor may give him possession of some part of his property by way of Pawn (q.v.); or, if he retains possession of his property, he may make a formal conveyance of it to the creditor by way of Mortgage (q.v.).
Loans are contracted not only by individuals, but by governments and public bodies. The aggregate debts of municipal corporations in the United Kingdom is very large, and the National Debt (q.v.) amounts to nearly 700 millions sterling. Loans of this class consist of capital sums, advanced for the most part by private persons, in consideration of payment of principal and interest or in consideration of annuities paid to the lender. When the subjects of one state lend money to the government of another, as, for example, when English investors buy Turkish bonds, international questions may arise in regard to payment. But it is now an accepted maxim that investors as such have no claim to the assistance of their government. When people lend money to Turkey they do so to obtain a high rate of interest; and they know, or ought to know, that 'high interest means bad security.' See C. Cotton's Loans Manual (1891).