January 25, 2025
What is Loan?
A loan is a financial arrangement in which one party (the lender) provides money or assets to another party (the borrower) with the agreement that the borrower will repay the amount, often with interest, over a specified period. Loans are commonly used to fund personal expenses, business ventures, or large purchases, such as homes or cars.
The key elements of a loan include:
- Principal: The original amount borrowed.
- Interest: A percentage of the principal charged by the lender as the cost of borrowing.
- Repayment Term: The time frame within which the loan must be repaid, usually in installments.
- Collateral (optional): An asset pledged by the borrower as security for the loan (e.g., property or a car) in case they cannot repay.
Loans can be secured (backed by collateral) or unsecured (not requiring collateral). Common types include personal loans, mortgages, student loans, and business loans.