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+<?xml version="1.0" encoding="UTF-8"?>
+<chapter id="details.loans">
+<chapterinfo>
+  <authorgroup>
+    <author>
+      <firstname>Darin</firstname>
+      <surname>Strait</surname>
+      <affiliation>
+        <address><email>darin.strait@ashdar-partners.com</email></address>
+      </affiliation>
+    </author>
+  </authorgroup>
+<date>2009-08-03</date>
+<releaseinfo>1.0</releaseinfo>
+</chapterinfo>
+
+<title>Loans</title>
+
+<sect1 id="details.loans.general">
+<title>Understanding Loans</title>
+
+<para>
+  This section provides an overview of how &kappname; handles loans.  Loan
+  regulations and customs vary from locality to locality. For detailed
+  explanations of loans, as well as information on local regulations and
+  customs, please see other resources.
+</para>
+
+<para>
+  A loan is an agreement under which a borrower receives money from a lender and
+  agrees to repay the money at some future date. &kappname; allows you to track
+  loans by which you, as borrower, borrow money from or, as lender, lend money
+  to someone else. Most individuals borrow more than they lend, so you will
+  generally be the borrower and a finance company will generally be the
+  lender. If you lend money to a family member or a friend, you can use
+  &kappname; to keep track of this loan as well.
+</para>
+
+<para>
+  This guide will assume that you are borrowing from some sort of finance
+  company, but the topics discussed here apply equally well to loans that you
+  might make to a person. The main difference between borrowing and lending
+  money is that an expense category is used to keep track of interest when
+  borrowing money and an income category is used to keep track of interest when
+  lending money.
+</para>
+
+<formalpara><title>Loan Principal</title>
+<para>
+  The amount that is lent out is called the <quote>loan amount</quote> or
+  <quote>principal</quote>.
+</para>
+</formalpara>
+
+<formalpara><title>Term</title>
+<para>
+  The period of a loan is called its <quote>term</quote> of the loan. At the end
+  of the term, the entirety of the principal will have been returned to the
+  borrower. Terms are generally expressed in weeks, months, or years. A term can
+  also be expressed by the number of payments. For example, a one year loan with
+  weekly repayments could be described as a one year loan or a loan with 52
+  repayments.
+</para>
+</formalpara>
+
+<formalpara><title>Repayments</title>
+<para>
+  The repayment of the principal to the lender is generally not done as a lump
+  sum. Instead, a series of repayments are made, each representing a portion of
+  the principal. Such repayments are sometimes known as <quote>amortization
+  payments</quote> and in &kappname; <quote>Amortization</quote> is defined as
+  the act of paying off a loan in installments.
+</para>
+</formalpara>
+
+<formalpara><title>Payment Frequency</title>
+<para>
+  The frequency of installments is referred to as <quote>Payment
+  Frequency</quote> in &kappname;. Examples of period might be weekly,
+  bi-weekly, monthly, quarterly, or yearly. In the US, periodic payments are
+  most commonly made every month, therefore the loan's period is one month.
+</para>
+</formalpara>
+
+<formalpara><title>Interest Rate</title>
+<para>
+  For the privilege of being able to use the money, the borrower will pay the
+  lender a fee called the <quote>interest</quote>, normally expressed as a
+  percentage of the amount of the principal over a defined period.  Interest
+  rates can be fixed, where the interest rate does not change over the lifetime
+  of the loan, or variable, where the interest rate can change over
+  time. Typically, interest payments are included with each periodic repayment.
+</para>
+</formalpara>
+
+<formalpara><title>Periodic Repayments</title>
+<para>
+  Since these repayments are generally made on some sort of scheduled basis,
+  such as weekly, monthly, quarterly, or yearly, they are referred to as
+  <quote>periodic repayments</quote>. The sum of all periodic repayments plus
+  the final repayment will add up to the loan principal plus the interest.
+</para>
+</formalpara>
+
+<formalpara><title>Fees</title>
+<para>
+  There may be other fees besides interest that are required to be paid with
+  every installment. These are called <quote>recurring fees</quote>. Examples of
+  recurring fees include (but are not necessarily limited to):
+
+<!--would prefer itemized list not in para, but formalpara requires para-->
+<itemizedlist>
+  <listitem>
+    <para>
+      <quote>Impound</quote> or <quote>escrow</quote> account
+      payments. (Payments of this sort are commonly used to hold funds to pay
+      annual or bi-annual property taxes.)
+    </para>
+  </listitem>
+
+  <listitem><para>Mortgage insurance</para></listitem>
+
+  <listitem><para>Disability insurance</para></listitem>
+
+  <listitem><para>Loan account maintenance fees</para></listitem>
+</itemizedlist>
+</para>
+</formalpara>
+
+<formalpara><title>Summary</title>
+<para>
+  In summary, the borrower receives a lump sum from the lender at the start of
+  the loan. The borrower makes a periodic payment to the lender. The periodic
+  payment is the sum of the principal payment (which is used to pay down the
+  balance of the loan) plus the interest payment (which rewards the lender for
+  allowing the use of the money by the borrower) plus any recurring fees (which
+  cover any incidentals.) At the end of the loan, the borrower has paid back the
+  entire principal.
+</para>
+</formalpara>
+</sect1>
+
+<sect1 id="details.loans.example">
+<title>Example</title>
+<para>
+  For an example, you might borrow $25,000.00 for a new auto and agree to pay
+  the bank one payment each month for 60 months. The interest rate on the loan
+  might be 5.5%.
+</para>
+
+<para>
+  In this scenario, the loan amount is $25,000.00. The term of the loan is 60
+  months or 5 years.  The term of the loan could also be described as 60
+  payments since there will be one payment per month for 5 years. The repayment
+  frequency is one month since periodic repayments will be made once a
+  month. The periodic repayment, which is calculated by &kappname;, would be
+  $477.53.
+</para>
+
+<para>
+  A <quote>loan schedule</quote> is a chart or table that shows the date that a
+  repayment should be made and the amount of each periodic repayment.  Often,
+  these schedules break the periodic payment down into its constituent parts:
+  the principal repayment, the interest payment, and the recurring fees payment.
+</para>
+</sect1>
+
+<sect1 id="details.loans.creation">
+<title>Creating a New Loan</title>
+
+<para>
+  In &kappname;, a loan is a type of account. Therefore, to create a new loan,
+  you begin by selecting <menuchoice><guimenu>Account</guimenu><guimenuitem>New
+  Account</guimenuitem></menuchoice>. Continue by answering the questions that
+  the wizard poses to you.
+</para>
+
+<para>
+  Optionally, a loan can be associated with a particular institution. If you are
+  borrowing from a mortgage company or a car loan company, you could create an
+  institution entry that describes this firm and associate the institution with
+  your loan. If you are borrowing from your Uncle Ted, there is no requirement
+  to set up an institution.
+</para>
+</sect1>
+
+<sect1 id="details.loans.extra-payments">
+<title>Making Extra Principle Repayments On Loans</title>
+
+<para>
+  If you would like to make an extra principal repayment, you can do so.
+  Simply <link linkend="details.ledger.transactions">enter a transaction</link>
+  using the ledger.  This extra repayment of principal will be taken into
+  account for the interest calculation that happens for the next periodic
+  payment.
+</para>
+
+<para>
+  Examples of extra principal payments include (but are not necessarily limited
+  to):
+</para>
+
+<itemizedlist>
+  <listitem><para>Contributing an extra $50 a month</para></listitem>
+
+  <listitem>
+    <para>
+      Doubling the periodic principal repayment for every period. (The principal
+      repayment can be found for any particular period by referring to the loan
+      schedule.)
+    </para>
+  </listitem>
+
+  <listitem>
+    <para>
+      Making a 13th principal repayment every year. (This assumes a loan that is
+      repaid in monthly installments.)
+    </para>
+  </listitem>
+</itemizedlist>
+
+<para>
+  Note: If you are doubling the principal repaid with every periodic payment,
+  you will need to recalculate the loan schedule for each installment. This will
+  allow there to be an accurate value for the required principal repayment with
+  each installment.
+</para>
+</sect1>
+</chapter>
+