We may not always have the money we require to do certain things or to buy certain things. In such situations, individuals and businesses/firms/institutions go for the option of borrowing money from lenders.
When a lender gives money to an individual or entity with a certain guarantee or based on trust that the recipient will repay the borrowed money with certain added benefits, such as an interest rate, the process is called lending or taking a loan.
A loan has three components – principal or the borrowed amount, rate of interest and tenure or duration for which the loan is availed.
Loans can be given to individuals, corporations, and governments. The main idea behind taking out one is to get funds to grow one’s overall money supply. The interest and fees serve as sources of revenue for the lender.
Most of us prefer borrowing money from a bank or a trusted non-banking financing company (NBFC) as they are bound to the government policies and are trustworthy. Lending is one of the primary financial products of any bank or NBFC (Non-Banking Financial Company) offers.