A loan transfers purchasing power from a lender to a borrower today in exchange for repayment later. Terms cover principal, interest rate, fees, collateral, and the repayment timetable. Personal loans, mortgages, and corporate credit lines are all variations of the same idea. Missing payments damages credit standing and can lead to repossession of collateral. Cheap debt can fund growth; expensive or poorly structured debt becomes a trap.
Key takeaways
- Repayment capacity matters more than the headline approval amount.
- Compare total cost, including fees, not only the advertised rate.
- Secured loans use collateral; unsecured loans rely more on credit quality.
- Refinancing risk rises when rates reset or short term debt must be rolled over.