The term loan refers to a type of credit vehicle in which a sum of money is lent to another party in exchange for future repayment of the value or principal amount. In many cases, the lender also adds interest and/or finance charges to the principal value which the borrower must repay in addition to the principal balance. Loans may be for a specific, one-time amount, or they may be available as an open-ended line of credit up to a specified limit. Loans come in many forms including secured, unsecured, commercial, and personal loans.
- A loan is when money is given to another party in exchange for repayment of the loan principal amount plus interest.
- Loan terms are agreed to by each party before any money is advanced.
- A loan may be secured by collateral such as a mortgage or it may be unsecured such as a credit card.
- Revolving loans or lines can be spent, repaid, and spent again, while term loans are fixed-rate, fixed-payment loans.