- 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