What is a loan?

A loan is simply a scenario where by someone gives you money on a temporary basis.

The someone that so kindly gives you the money is usually a bank, though in theory anyone who has the money could loan it to you.

Other potential sources of loan funding can include friends and family, or what is fondly known as students as 'the bank of Mum and Dad'.

The key thing about a loan is that the money is not permanently lent to you, but rather you will need to pay it back.

The period over which you must pay the loan back varies depending on the amount that you borrow, and is known as the term of the loan.

So a loan that must be paid back over five years has a term of five years.

Generally speaking, the longer the term of the loan, the more money you will end up paying back.

This is because of the other fact of a loan - interest is applied to it, meaning that you end up paying back more, sometimes much more, than the amount of money that you borrowed off the lender. The longer the term of the loan the more time there is for interest to be accrued and hence you tend to pay back more money the longer the term of your loan.

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