Meaning and definitions of loan

LOANS

Introduction ( definitions and meaning)

• a thing that is borrowed, especially a sum of money that is expected to be paid back with interest
• an act of lending something to someone
• lend (a sum of money or item of property)
• The act of giving money, property or other material goods to another party in exchange for future repayment of the principal amount along with interest or other finance charges
• A loan may be for a specific, one-time amount or can be available as open-ended credit up to a specified ceiling amount
• The terms of a standardized loan are formally presented (usually in writing) to each party in the transaction before any money or property changes hands
• If a lender requires any collateral, this will be stipulated in the loan documents as well
• Most loans also have legal stipulations regarding the maximum amount of interest that can be charged, as well as other covenants such as the length of time before repayment is required
• Loans can come from individuals, corporations, financial institutions and governments
• They are a way to grow the overall money supply in an economy as well as open up competition, introduce new products and expand business operations
• Loans are a primary source of revenue for many financial institutions such as banks, as well as some retailers through the use of credit facilities
• Borrowing money can be an interesting way to be able to make investments (in a business, house, study), bridging financial difficult times or to buy expensive (consumer) goods like cars, motorcycles or household appliances
• As interest rates may vary dramatically amongst different financial institutions it is wise to carefully study these differences before getting a loan
• In finance, a loan is a debt evidenced by a note which specifies, among other things, the principal amount, interest rate, and date of repayment
• A loan entails the reallocation of the subject asset(s) for a period of time, between the lender and the borrower
• In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time
• Typically, the money is paid back in regular installments, or partial repayments; in an annuity, each installment is the same amount
• The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan
• In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions known as loan covenants
• Acting as a provider of loans is one of the principal tasks for financial institutions
• For other institutions, issuing of debt contracts such as bonds is a typical source of funding