What Is Loan?
Definition
Money borrowed from a bank that must be paid back with interest over a set period. Common types: auto loans, student loans, mortgages, personal loans.
Example: "I took out a $15,000 student loan at 5% interest with a 10-year repayment term."
Why It Matters
Loans make large purchases and investments possible, but they come with real costs. Before borrowing, understand the total cost, not just the monthly payment. A $20,000 car loan at 6% over five years costs you $3,200 in interest on top of the original amount. Shop around because interest rates vary widely between lenders. Secured loans (backed by collateral like a car or house) usually have lower rates than unsecured loans. Making extra payments toward the principal can save you significant money over the life of the loan.
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