Loan – what it really implies

Posted on February 6, 2008
Filed Under Loans

All material things may be lent out. But, let me concentrate only on monetary aspect of loan. To speak on financial terms, a loan is a type of debt. Like debt instruments, a loan will warrant redistribution of financial assets in due course between the giver (lender) and taker (borrower). In loan, the borrower will receive some money, which he will pay back either in installments or in lump sum at one go to the lender. But, this service, which the borrower gets, will cost him some service charges in the form of interest and little more to be paid to the lender. There are some restrictions imposed on the borrower also which is termed as loan covenants as per loan terms.

Financial Institutions are one of the main providers of loan. Bank loans and credits are another major source for borrowers to avail loan facilities. Some other Institutions issue bonds, which are in reality, are debt contracts but all the same are source of money supply for borrowers.

In fact , legally speaking a loan is a contractual agreement of a borrower to repay a larger sum of money in exchange against the promise by the lender to give a different and less sum of money.

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