What is a Loan?
A loan is a financial arrangement in which one party, known as the lender, provides money or resources to another party, known as the borrower, with the expectation that the borrower will repay the loan amount along with any agreed-upon interest or fees over a specified period of time. Loans are a common form of financing used by individuals, businesses, and governments to fund various expenses or investments.
Key Features of Loan:
- Lending of Money: A loan involves one party (the lender) providing money to another party (the borrower) with the expectation that it will be repaid with interest over time.
- Terms and Conditions: Loans have specific terms and conditions, including the principal amount, interest rate, repayment schedule, and any collateral or guarantees required.
- Legal Agreement: Loans are typically formalized through a legal agreement, which outlines the rights and obligations of both the lender and the borrower.
Difference between Fund and Loan
While both funds and loans involve the use of money, they differ in terms of the nature of the transaction, ownership, and control, and risk and return characteristics. Funds involve pooling money from multiple investors for investment purposes, while loans involve the lending of money from one party to another with the expectation of repayment with interest.