A Loan can be simply defined as borrowing money from someone and agreeing to return it after a specific period. Two parties are involved in a loan transaction, the first party is a borrower who receives the loan, and the second party is lender who gives the loan. A loan involves the relocation of financial property over time, just like other debt instruments.
In the process of receiving a loan, the borrower borrows a certain amount of money from the lender like any financial institution, and then he/she becomes liable to pay back the principal amount along with the agreed amount of interest at a fixed period of time. The repayment of loan may be on regular monthly installments or on yearly payments, if have same amount of money then it is called as annuity.
Moreover, in a legal loan, the borrower follows all the obligations and restrictions written in the contract. This loan is backed by collateral.
Normally financial institutions lend money to borrowers on an agreed rate of interest. These loan providers also require some security to secure the loan amount.
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