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  • A loan is a sum of money that is borrowed from a financial institution and then paid back in instalments.
  • Loans have different lengths of time, for example medium-term loans and long-term loans.

Mid-Term Loans

  • A mid-term loan is paid back to the lender in instalments between one and five years.
  • It is repaid with interest.
  • An example of why a person would take out a mid-term loan would be to buy a car.

Long-Term Loans

  • A long-term loan is repaid over more than five years.
  • It is repaid in instalments, which includes interest.
  • Long-term loans are taken out to cover larger financial needs. For example, buying a house or building an extension.
  • As long-term loans are usually for a large sum, the bank may require collateral as a security against the loan.
  • Another form of security that may be required by a lender is the naming of a guarantor.

Applying For A Loan

  • A person who wants to borrow money must complete a loan application form.

The amount of money that a person can borrow depends on a number of personal factors such as:

  • Income
  • Job security
  • Existing loans
  • Credit history
  • Age