loan

A loan is a financial agreement in which a lender provides money or property to a borrower with the expectation of repayment, usually with interest and fees. Loans are used to fund purchases, investments, or operations, and they can involve cash or non-cash assets.

Loans vary by purpose and structure. Secured loans are backed by collateral such as a home or vehicle, while unsecured loans rely on the borrower's creditworthiness. Common forms include mortgages, auto loans, student loans, personal loans, and business loans. Credit cards provide revolving credit rather than a single lump sum.

Key terms include principal—the amount borrowed; interest—the cost of borrowing; the interest rate; fees; and the annual percentage rate (APR) that aggregates interest and fees. The loan term is the repayment period; many loans are amortized so payments cover interest and principal over time. Collateral and covenants can affect risk and terms. Default occurs if the borrower fails to repay as agreed.

Process and servicing: The lender assesses creditworthiness, income, and collateral; a loan is approved or denied; funds are disbursed; repayment occurs according to a schedule; late payments may incur penalties; default can lead to collection or legal action; loans can be securitized or sold on secondary markets in some cases.

Regulation and impact: Financial regulation governs disclosure, pricing, and consumer protections to prevent predatory lending and ensure transparency. Usury laws cap rates in some jurisdictions. The availability of loans influences consumer spending, investment, and economic cycles, while excessive debt can contribute to financial instability.