What is a loan defined as in personal finance?

In personal finance, a loan is defined as a sum of money borrowed that is expected to be paid back. This definition highlights the essential characteristics of a loan, which include the borrowing of funds and the obligation to repay that amount, often with added interest, within a specified time frame.

Loans provide individuals and businesses with immediate access to funds that can be used for various purposes, such as purchasing a home, financing education, or covering unexpected expenses. The repayment typically involves regular installments over a predetermined duration, allowing the borrower to manage their financial obligations effectively.

The other definitions do not accurately capture the nature of a loan. For instance, a method of buying goods gradually describes a different concept, such as installment payments or credit agreements. A type of investment refers to putting money into assets with the expectation of generating income or profit but does not align with the borrowing and repayment dynamic of loans. Lastly, money saved for future use indicates savings or investments rather than borrowing. Understanding these distinctions is crucial for managing personal finances effectively.