What is a loan?

A loan is fundamentally defined as a sum of money that is lent to an individual or entity with the expectation that it will be paid back, usually with interest, over a specified period. This definition captures the essence of what a loan is, including the central aspect of returning the principal amount along with any agreed-upon interest.

Loans can be taken out for various purposes, such as purchasing a home, financing education, or funding a business. They are contractual agreements between a lender and a borrower, and they play a crucial role in financial markets and personal finance. The distinction of loans being returned after use is key to understanding their nature as opposed to other financial instruments or aids, such as investments or grants, where the return of capital is not typically required.