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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.

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