Final answer:
A loan arrangement where the buyer makes payments to the seller, who in turn pays the original loan, is known as a wraparound mortgage. This is distinct from a cosigner, who is responsible for loan repayment if the original borrower defaults.
Step-by-step explanation:
A loan arrangement that allows payments to be made to a seller who, in turn, continues to make payments on an existing loan is typically known as a "wraparound" mortgage or a wraparound loan arrangement. This type of financing is an example of creative financing where the new buyer makes mortgage payments to the seller, who then continues to pay the original mortgage to the bank. The wraparound loan includes the balance of the original loan plus an amount to cover the extra funds that were loaned to the buyer. The seller, in essence, becomes the lender to the buyer while still holding the responsibility for the original loan.
It's important to note that this is different from having a cosigner. A cosigner is another person or firm who legally pledges to repay some or all of the money on a loan if the original borrower does not.
When a firm takes out a bank loan, it operates similarly to an individual taking out a loan. The lender provides the money with the expectation of repayment with interest over a set period. In cases where the firm, or individual, cannot make the payments, the lender may enforce the repayment through the courts, requiring the sale of assets such as equipment or buildings.