What is a Loan? June 2023

By | April 19, 2022

A loan is money given to a party by another party, usually a bank or lending institution, and repaid, usually over several months, with interest. The person receiving the loan is known as the borrower.

A loan can also be the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations etc. The recipient incurs a debt and is usually liable to pay interest on that debt until it is repaid as well as to repay the principal amount borrowed.

A loan is a form of debt but, more specifically, is an agreement in which one party lends money to another. The lender sets repayment terms, including how much is to be repaid and when. They also may establish that the loan must be repaid-with interest.

A typical type of loan is a mortgage, given to someone for the purpose of purchasing a home. Mortgage repayment periods generally range from 15 to 30 years. The repayment period is determined by the lender, so it is important to check with your financial institution.

Banks lend money to companies to encourage them to use business checking and savings accounts, financial advisory services, tax preparation services, and even investment banking services in a different branch of the bank.

Banks generally make money by borrowing money from depositors and compensating them with a certain interest rate. The banks will lend the money out to borrowers, charging the borrowers a higher interest rate and profiting off the interest rate spread.

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