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Personal loan - Definitions

Inside Section 2
[ Personal loan - Definitions ] Banks ]

What is a personal loan? To understand this, we have to look at some definitions.

First of all, lets take a look at "loan". A loan means that you have got something that belongs to another and that you have to give this back or in some other means give back someting of a eaqual value.

Then let us see what Wikipedia has to say on this issue:

A loan is a type of debt. All material things can be lent; this article, however, focuses exclusively on monetary loans. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.

The borrower initially receives an amount of money from the lender, which they pay back, usually but not always in regular installments, to the lender. This service is generally provided at a cost, referred to as interest on the debt. A borrower may be subject to certain restrictions known as loan covenants under the terms of the loan.

Acting as a provider of loans is one of the principal tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is a typical source of funding. Bank loans and credit are one way to increase the money supply.

Legally, a loan is a contractual promise of a debtor to repay a sum of money in exchange for the promise of a creditor to give another sum of money.

This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article "Loan".


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