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What is a Loan?

A loan is a financial transaction in which one party - the lender - agrees to give another party - the borrower a specific amount of money which must be paid back in full.

There will also be interest payments at an agreed rate, and sometimes there are additional charges for the administration of the loan by the lender. The terms and conditions of a loan will vary from lender to lender but will be specified in the contract. The lender can ask for interest payments in addition to the original amount of the loan which is also sometimes known as the principal. The borrower must adhere to the repayment terms stated in the contract especially repayment dates and interest rates. Some lenders may also assign financial penalties for missed or late payments. Loans come in all shapes and sizes but overall there are two main types, secured and unsecured loans. With a secured loan the lender can force the sale of the asset the borrower has offered as security against the loan. On the other hand for an unsecured loan the lender relies on the borrower's promise to pay the money back.
 
 

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