A 'loan' is a type of debt. Like all debt instruments, a loan entails the
redistribution of financial assets over time, between the and the . In a loan, the borrower initially receives or borrows an amount of money, called
the principal, from the lender, and is obligated to pay back or repay an equal
amount of money to the lender at a later time. Typically, the money is paid back
in regular installments, or partial repayments; in an annuity, each installment
is the same amount. The loan is generally provided at a cost, referred to as
interest on the debt, which provides an incentive for the lender to engage in
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 known as loan covenants. Although this article focuses on monetary
loans, in practice any material object might be lent. Acting as a provider of loans is one of the principal tasks for financial
institutions. For other institutions, issuing of debt contracts such as bonds is
a typical source of funding.
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