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A lender provides funds to another with the expectation those funds will be repaid with interest.

For example, a bank serves as a lender when it loans money to a homebuyer. The federal government serves as a lender when it provides students with loans to pay for college. A bank that provides a business owner with the funds to open a new location is a lender. Each recipient is expected to repay their loan with interest and any fees that apply.

When an investor buys corporate bonds, she is serving as a lender to the corporation. If the company goes bankrupt, the lender will receive repayment before shareholders.

Loans come with terms that specify how they’re to be repaid, including the length of time, interest rate, and the consequences for defaulting. Sometimes lenders will put a lien on a borrower’s assets if the borrower defaults on their loan. That forces the borrower to repay the loan before it can sell its assets.

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