Principal:
The original amount of money borrowed.
Interest:
The cost of borrowing the money, expressed as a percentage of the principal.
Repayment:
The borrower agrees to repay the loan, including the principal and interest, within a set timeframe and according to a specified schedule (e.g., monthly installments).
Purpose:
Loans are used for various purposes, such as purchasing a home, buying a car, financing education, or covering unexpected expenses.
Secured vs. Unsecured:
Secured loans, like home loans, are backed by collateral (e.g., a house), while unsecured loans, like personal loans, are not.
Loan Application Process:
Borrowers typically apply for a loan by providing information about their financial situation, employment history, and the reason for needing the loan.
Credit Score:
A lender will assess the borrower's creditworthiness, including their credit score, to determine the interest rate and whether the loan application will be approved.
Different types of loans:
Home Loan: Used to purchase a house.
Personal Loan: A flexible loan that can be used for various purposes.
Car Loan: Used to purchase a vehicle.
Student Loan: Used to finance education.
Business Loan: Used by businesses to finance operations and growth.