In finance, a loan is the loan of money by one or more people, organizations or other entities to other people, organizations, etc. The beneficiary (i.e. the borrower) incurs a debt and is generally required to pay interest on that debt until it is repaid as well as to repay the principal borrowed.
The debt document (for example, a promissory note) will normally specify, among other things, the amount of money borrowed, the interest rate charged by the lender, and the date of repayment. A loan involves the reallocation of the asset (s) in question for a certain period between the lender and the borrower.
Interest prompts the lender to commit to the loan. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions called loan covenants. Although this article focuses on monetary loans, in practice any material object can be loaned.
Acting as a loan provider is one of the main activities of financial institutions such as banks and credit card companies. For other institutions, issuing debt contracts such as bonds is a typical source of funding