Taking a loan means borrowing money from a financial institution, such as bank, microfinance institution or credit union, or a local money lender. Usually, a loan is a lump sum of money that is repaid over a fixed term. The borrower incurs a debt and usually has to pay interest (percentage of the amount borrowed) on the debt until it is repaid, as well as paying the principal (full initial amount) of the amount borrowed.
Loans can be provided for many different purposes, e.g. buying a car or home or for covering migration costs. Payday loans, short term cash advances that allow the borrower to cover expenses they might not otherwise be able to while they wait for payday, are increasingly popular but come with very high interest rates making it very difficult for the receiver to pay back.
The cost of a loan will vary depending on the type of loan you seek and the lender’s policies regarding interest rates, fees, savings requirements, guarantors and collaterals. Before you take a loan, compare the costs of the loan you need among several lenders.