This research paper deals with the basic concept of loans and non-performing loans (NPLS). The causes and consequences of non-performing loans, how these loans affect the economy of country and how these loans affect the liquidity of institutes? As we know that Pakistan witnessed the bankruptcies in past, institutes like IDBP, NDFC, PICIC went bankrupt. Furthermore, the State Bank of Pakistan (SBP) maintains a comprehensive databank on ‘Financial Soundness Indicators’ of all banks under its jurisdiction. In 2008, non-performing loans to loans stood at 10.5 percent. By September 2011, the same had increased to 16.7 percent. Over the same period, non-performing loans have gone up from Rs359 billion to a colossal Rs613 billion, an increase of over 70 percent in three years (Saleem F, 2012). Therefore, this research paper addresses the solutions and remedies for the institute that how to overcome the problem of NPLS.