Loan

A loan is a financial arrangement in which assets are redistributed between a lender and a borrower over a specified period of time. Under the terms of a negotiated agreement the lender makes funds available to the borrower with a set schedule of periodic payments and agreed upon interest (or fee for the use of the money) included. The interest is figured as a percentage of the original loan amount, which is called the principle.

Secured loans are those in which an asset is "put down" against the loan amount. For instance, in a mortgage, the home that is purchased is security against the loan and can be seized if the mortgage payments are not made. Examples of unsecured loans would include credit card debt, personal loans, bank overdrafts, and corporate bonds.

An individual's proven ability to assume and to resolve responsibility for a loan is a major factor in determining their credit score or rating.

More Terms Explained