What is a loan?

• A. A type of savings account
• B. A gift of money from a friend
• C. Money you lend to someone else
• D. Money borrowed that must be repaid with interest

Answer: (D)

A loan is money borrowed from someone else, with the agreement that it will be paid back later. When you borrow, you usually pay interest, which is extra money that helps cover the lender’s cost and reward them for lending. The payments follow a plan that includes paying back the original amount plus the interest over time. This is different from a savings account, where you deposit money to keep and grow, not to be repaid. It’s also different from a gift, which doesn’t require any repayment. And while you might lend money to someone else, a loan specifically describes the arrangement that creates a debt for the borrower and the obligation to repay with interest.