A loan is money lent to a borrower with the expectation of repayment. The lender advances funds. The borrower agrees to pay them back, usually with interest, over a set period. The terms are spelled out in a contract. If the borrower fails to pay, the lender can take legal action or seize collateral.

Loans come in many forms. Personal loans are unsecured and based on creditworthiness. Auto loans are secured by the vehicle. Mortgages are secured by real estate. Student loans fund education. Business loans support operations and expansion. Payday loans are short-term and carry extremely high interest rates. Each type has its own rules, rates, and risks.

Lenders assess risk before approving a loan. They look at credit history, income, employment, and existing debt. Collateral reduces risk. A co-signer adds another party responsible for repayment. Interest rates reflect the lender's assessment. A low-risk borrower gets a lower rate. A high-risk borrower pays more or is denied. Loans make large purchases possible. They also create obligations that can last decades. Reading the terms before signing is essential. The monthly payment is only part of the picture.

Common types

• Personal loans
• Auto loans
• Mortgages
• Student loans
• Business and payday loans