Loan

A loan is a sum of money that one individual or institution gives to another with the clear expectation that the money will eventually be repaid in full. Loans are intended to give borrowers fast access to money that they have not yet earned. Most lenders charge a fee for this service in the form of an extra charge each month based on the amount of money borrowed. If a person has a poor credit history, then the lender might also require some type of collateral to secure the money in case the borrower stops paying. Depending on the terms that are agreed to, the repayment schedule can be as short as a few weeks or as long as several decades.

People most often acquire a loan so they can have access to funds immediately instead of having to save the money first. Some loans are given as a large lump sum of money that can be targeted towards a specific purpose like the purchase of a car or house. Other loans are given generally as they are needed. A credit card is a form of a loan since the institution that issues the card is technically loaning the cardholder money as they need it with the expectation that it will be repaid on a monthly basis.

The money that is given to the lender is expected to be repaid. The ability of the borrower to repay a loan is assessed by the lender and results in a calculation of how much risk there is that the money will not be repaid. Factors such as income and credit history are taken into consideration. An individual with a stable income and a good credit history might be given a loan without any problems because they present a low risk. Very large loans or loans given to those with a poor credit history might require that a person secure the money with some type of asset like a house or car. A secured loan means that the lender has the option to seize whatever assets were offered if the borrower fails to repay the money.

A loan is almost never given to a borrower for free. In most cases the issuing bank or institution will charge the borrower a percentage of the total amount. This percentage is called interest. The interest on a loan can be significant if the length of time taken to repay the money is very long. When considering a loan, many people calculate the total amount of money that will be paid to the lender including the interest.