Loan

Meaning: 

Secured Loan:

Requires collateral, such as real estate or vehicles, which provides the lender with security in the event of default (e.g., home loans, car loans).

Unsecured Loan:

Does not require collateral and is granted based on the borrower’s creditworthiness and ability to repay (e.g., personal loans).

Loans can also be categorized as short-term or long-term based on their repayment duration.

Importance in Finance:

Loans facilitate individuals in acquiring essential assets, such as homes and vehicles, and funding educational pursuits.

For businesses, loans are crucial for expansion, purchasing equipment, and managing

operational cash flow, thereby contributing to economic growth by increasing overall spending and investment.

 

How Loans Evolve in the Economy:

Loans increase purchasing power, allowing individuals and businesses to spend more. When people borrow money, they tend to spend it, boosting demand for goods and services, which in turn helps businesses grow and the economy flourish.