Sometimes people, businesses, even governments, face expenses that are greater than their income or savings, and must take out a loan. Today, we are going to explain what a loan is.
In finance, a loan is the lending of money or its equivalent, such as credit (which we will explain in a later video), by one or more individuals to other individuals.
A loan requires the participation of a lender who loans the money, and of a borrower, who receives the money on the promise to pay it back.
A loan starts with a loan agreement that describes:
- The lender and borrower
- The loan amount and interest rate
- The repayment requirements and schedule
- The time frame to completely pay it back
- if required, a description of any collateral or other security (such as a guarantee from others)
- What happens if repayments are not made on time, and
- Any finder fees, and who pays the costs of setting up the loan.
And that’s it for this video, hopefully you learned something and watch the next.
