What Is a Loan, How Does It Work, Types, and Tips on Getting One
What Is a Loan, How Does It Work, Types, and Tips on Getting One What Is a Loan? 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 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 different forms including secured, unsecured, commercial, and personal loans. KEY TAKEAWAYS A loan is when money is given to another party in exchange for repayment of the loan principal amount plus interest. Lenders will consider a prospective borrower's income, credit score, and debt levels before deciding to offer them a loan. A loan may be secured by collateral, such as a mortgage, or it may be unsecured, such as a credi...