Borrowing refers to the act of taking out a loan. This involves a request for a certain amount in funds from an entity known as the borrower, and the granting of such a request by a lender. Since this arrangement is essentially one that involves debt, then the repayment of the amount is also a basic requirement in the entire process of asset redistribution. Usually the borrower has to pay more than the original amount, or principal, that was lent to him. The additional amount is known as the interest.
The loan is usually divided into smaller portions for repayment, known as installments. In the case of annuities, installments are paid in equal amounts. Generally interest rates are higher for loans that are set to be repaid over a longer period of time, so to avoid this, try to repay the entire loan immediately, without making use of installment plans.
Loans are considered legally bound involve the creation and enforcement of provisions in a contract. Under such an arrangement, borrowers may be placed under restrictions that govern the repayment of the loan. These serve to protect the lender from loss. Financial institutions, such as banks and other intermediaries, serve to provide loans but have their own set of conditions before loan requests are granted. While there are certain restrictions set to protect the lender, borrowers must also secure themselves from practices such as usury, when the interest rates are set too high. The threshold rate is different in various territories.
There are various types of loans. These can be secured or unsecured. Secured loans require collateral, whereas unsecured loans do not require property or assets to secure the loan.
