Loan

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Financial Terms and Glossary

Loan

A loan is a financial arrangement in which a lender provides money to a borrower with the expectation that it will be repaid, usually with interest, over a specified period. Loans are commonly used by individuals, businesses, and governments to finance large purchases, investments, or other expenses. The terms of a loan, including the interest rate, repayment schedule, and collateral requirements, are outlined in a loan agreement.

Example

A business takes out a $500,000 loan from a bank to finance the purchase of new equipment, agreeing to repay the loan over five years at a fixed interest rate of 4%.

Key points

• A financial arrangement where a lender provides money to a borrower with an agreement to repay it with interest.

• Used by individuals, businesses, and governments to finance purchases and investments.

• Terms, including interest rate and repayment schedule, are outlined in a loan agreement.

Quick Answers to Curious Questions

What is the primary purpose of a loan?

Loans provide borrowers with the necessary funds to make large purchases or investments, which are repaid over time with interest.

How do interest rates affect loans?

Interest rates determine the cost of borrowing, with higher rates increasing the total amount repaid over the loan’s term.

What are common types of loans?

Common types include personal loans, mortgages, auto loans, and business loans, each with specific terms and uses.