A
loan is a type of
debt. Like all debt instruments, a loan entails the redistribution of financial
assets over time, between the
lender and the
borrower.
In a loan, the borrower initially receives or
borrows an amount of
money, called the
principal, from the lender, and is obligated to
pay back or
repay an equal amount of money to the lender at a later time. Typically, the money is paid back in regular
installments, or partial repayments; in an
annuity, each installment is the same amount. The loan is generally provided at a cost, referred to as
interest on the
debt, which provides an incentive for the lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by
contract, which can also place the borrower under additional restrictions known as
loan covenants. Although this article focuses on monetary loans, in practice any material object might be lent.
Acting as a provider of loans is one of the principal tasks for
financial institutions. For other institutions, issuing of
debt contracts such as
bonds is a typical source of funding.(Wikipedia)
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