What Is Loan?

Banking Term Definition | Last Updated: April 2026 | Browse All Terms

Loan — Money borrowed from a bank that must be paid back with interest over a set period. Loans make large purchases and investments possible, but they come with real costs.
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.

Try it: See how extra payments toward principal cut payoff time in the payoff calculator. Open tool →

Related Banking Terms

Principal The original amount of money deposited or borrowed, before any interest is added. Interest Rate The percentage used to calculate interest. APR (Annual Percentage Rate) The yearly interest rate charged on borrowed money (loans, credit cards) or earned on savings. Credit Score A number (300-850) that represents how reliable you are at paying back borrowed money.

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