what is a loan 
the term loan refers to a type of credit vehicle in which a sum of money is lent to another party in exchange for future repayment of the value or principal amount in many cases the lender also adds interest or finance charges to the principal value which the borrower must repay in addition to the principal balance loans may be for a specific one time amount or they may be available as an open ended line of credit up to a specified limit loans come in many different forms including secured unsecured commercial and personal loans investopedia tara anandunderstanding loansa loan is a form of debt incurred by an individual or other entity the lender usually a corporation financial institution or government advances a sum of money to the borrower in return the borrower agrees to a certain set of terms including any finance charges interest repayment date and other conditions in some cases the lender may require collateral to secure the loan and ensure repayment loans may also take the form of bonds and certificates of deposit cds it is also possible to take a loan from a 401 k account the loan processhere s how the loan process works when someone needs money they apply for a loan from a bank corporation government or other entity the borrower may be required to provide specific details such as the reason for the loan their financial history social security number ssn and other information the lender reviews this information as well as a person s debt to income dti ratio to determine if the loan can be paid back based on the applicant s creditworthiness the lender either denies or approves the application the lender must provide a reason should the loan application be denied if the application is approved both parties sign a contract that outlines the details of the agreement the lender advances the proceeds of the loan after which the borrower must repay the amount including any additional charges such as interest the terms of a loan are agreed to by each party before any money or property changes hands or is disbursed if the lender requires collateral the lender outlines this in the loan documents most loans also have provisions regarding the maximum amount of interest in addition to other covenants such as the length of time before repayment is required 