Loan
In finance, a
loan is a debt provided by one entity to another entity at an interest rate, and evidenced by a note which specifies, among other things, the principal amount, interest rate, and date of repayment. A loan entails the reallocation of the subject asset for a period of 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.