What is a loan?

A loan is a financial agreement in which a lender, usually a financial institution such as a bank, makes a sum of money available to a borrower. This loan comes with the borrower's obligation to repay the principal amount, plus interest, which represents the cost of borrowing, over a specified period. The terms of a loan, including the interest rate, repayment schedule, and penalties for non-payment, are specified in a loan agreement. Loans can take many forms, ranging from personal and mortgage loans to student and business loans, each with its own specific characteristics and conditions.