Next video:
Loading the player...

A loan is the act of giving money, property or other material goods to another party with the expectation of being repaid.

Loans are important because they help grow an economy’s supply of money. They foster competition, introduce products and expand businesses. Investors should always consider the loans a company has made when analyzing an opportunity. And borrowers need to fully understand the terms of any loan they accept.

In exchange for a loan, the lender usually expects to be repaid the principal with interest. Loans can come from virtually anyone, from individuals to corporations, and consumers take them for many reasons – to buy a car, to open a business, to go to college, just to name a few.

Credit card companies are essentially issuing cardholders loans used to make purchases. Bond issuers, including governments and corporations, are accepting loans when they issue a bond to fund a project or activity. Banks use loans as a primary source of revenue, generated by the interest they charge.

Loans can be for a specific time or amount, or open-ended up to a certain ceiling. Terms of a loan, such as how long the borrower has to repay it, are usually put in writing so both parties know where they stand.

If a loan requires collateral, or property the lender can seize if the borrower stops making repayments, that’ll be specified, as well. For example, mortgages typically use the house as collateral.

Related Articles
  1. Insights

    An Introduction to Government Loans

    Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
  2. Investing

    Commercial Real Estate Loans

    Obtaining a commercial real estate loan is quite different from borrowing for residential real estate. Here's what to expect and how to get what you need.
  3. Personal Finance

    Personal Loans: To Lend Or Not To Lend?

    Attempting to help a loved one with a cash loan can put a strain on your relationship - and your bank account.
  4. Retirement

    Sometimes It Pays to Borrow from Your 401(k)

    401(k) loans have been demonized, but they're often the most beneficial source of cash.
  5. Personal Finance

    College Loans: Private vs. Federal

    Not all student loans are the same. Know what you're getting into before signing on the dotted line.
  6. Personal Finance

    Lending From A Loan Officer's Perspective

    Learn how a loan officer thinks, so that you can get the best and safest loan.
  7. Personal Finance

    Getting a Loan Without Your Parents

    Use the 5 "W"s to finance your dreams without banking on a second signature.
  8. Personal Finance

    8 Top Alternatives to Car Title Loans

    Before you sign up for a car title loan, investigate these 8 alternate strategies.
  9. Personal Finance

    The 4 Worst Ways To Borrow Money

    While there are less risky places from which to borrow, there are also predatory lenders who can make your financial situation worse than it was to begin with.
Trading Center