What is a Loan?

​​​A loan is a borrowed sum from a bank or a financial institution. A person or entity who receives the money is called a borrower and the institution who provides the loan is called a lender.  

A lender levies a specified per cent of interest on the loan based on the eligibility factors of the borrower, such as income, job stability, credit score, etc.  For example, as a borrower,  if you have a salary of INR 1 Lakh/month and you need a loan of INR 30 Lakhs, the bank will provide credit at a low-interest rate (8-8.5%) and for a lengthy tenure.

Here is the crux of loan concept – The borrower has to repay the loan amount, including the interest rate as imposed by the lender, over a prescribed period.