Lending

Lending is the act of providing money or other resources by one party (the lender) to another (the borrower) with the expectation of future repayment. The core elements are the principal (the amount lent), interest (the cost of borrowing), a repayment schedule, and an agreed term. Lenders may require collateral or guarantees to secure the loan, and repayment terms may include amortization, prepayment penalties, and covenants. If the borrower fails to repay as agreed, the lender may pursue remedies such as collateral seizure or legal action.

Lending arrangements vary by purpose and risk. Consumer lending covers mortgages, auto loans, student loans, and credit cards. Business lending includes working capital facilities, term loans, and lines of credit. Credit can be secured (backed by collateral like real estate or equipment) or unsecured (based on creditworthiness or income). Additional forms exist in wholesale and nonbank lending, including microfinance and peer-to-peer platforms.

Underwriting typically involves assessing credit risk, income, debt service ability, and collateral value. Interest rates reflect risk, term, and market conditions. Repayment schedules may be fixed or variable. Lending activities are governed by contracts and a regulatory framework aimed at consumer protection, prudential supervision of lenders, and disclosure requirements. In many economies, central banks influence lending conditions through monetary policy and reserve requirements.

Lending plays a key role in financial intermediation by channeling funds from savers to borrowers, enabling investment and consumption while generating income for lenders and supporting economic activity. Principal risks include default, liquidity risk, and collateral valuation, which are addressed through risk management, diversification, and appropriate regulation.