A loan is an operation whereby a financial entity puts at our disposal a certain amount of money through a contract. In a loan we acquire the obligation to return that money within a set period of time and to pay agreed fees and interest. We can return the money in one or several payments, although, usually, the amount is returned in monthly installments that include commissions and interest.
As for a loan, the amount of money we ask for is called the principal, while interest is the price we pay for being able to have that money. The period of time to pay the loan is known as the term.
The lender is the person or financial entity that lends the money or the good as a loan. The borrower is the person who receives the money or the good as a loan.
According to article 1.740 of the Civil Code, “For the loan contract, one of the parties delivers to the other, or something not fungible to use it for a certain time and return it, in which case it is called bailment, or money or other fungible thing, with the condition of returning another of the same species and quality, in which case it simply retains the name of the loan. The loan is essentially free. The simple loan can be free or with an agreement to pay interest. ”
A loan is something that lends; that is, something that is given to an individual under the condition that he must return it in the future. If, by its nature, what was received cannot be returned, something equivalent must be delivered. When borrowing is money, loan is synonymous with credit.
A bank loan, therefore, is the credit granted by a bank. Typically, this operation begins when a person goes to the bank to borrow money. Upon receiving the order, the bank will analyze the payment capacity and approve the delivery of a certain amount under certain conditions. The bank’s profit will be that, upon returning the money, the person will have to deliver an additional interest.
The entity that grants the bank loan has several mechanisms to protect itself in case the person incurs a default. The most frequent is to fix a guarantee, which the bank can execute if the individual does not pay the loan installments.
For a person, applying for a bank loan can be a solution to have money that, otherwise, would not have at the time in question. This money can be used to go on vacation, buy a car, remodel the house, etc. However, upon receiving a credit, the subject will have incurred a debt whose expenses can be very high.