Business, Legal & Accounting Glossary

Definition: Loan

What is the dictionary definition of Loan?

Dictionary Definition

  1. A sum of money or other valuables or consideration that an individual, group or other legal entity borrows from another individual, group or legal entity (the latter often being a financial institution) with the condition that it be returned or repaid at a later date (sometimes with interest).
  2. The contract and array of legal or ethical obligations surrounding a loan.
  3. The permission to borrow any item.
  4. To lend (something) to (someone).

Full Definition of Loan

In economics, loan is defined as an act of providing property, money, or any other form of material good to another entity. A loan is provided in anticipation that it would be paid back in principal along with a certain amount of interest. There are a couple of broad categories of loans – they may be lump sum and the specific amount or they may be provided as credit that is open-ended and has a certain ceiling amount.

Both parties of a loan, provider and receiver, receive the terms of a standardized loan in a formal way. This is done before the loan is provided to a borrower. There are two basic types of loans like secured loans and unsecured loans. Secured loans require a collateral to be attached to them and this clause is mentioned in the loan contract.

A loan contract contains a number of arrangements like the amount of interest with which the loan is to be paid back. There are also other important aspects like the time period to be granted for repaying a loan. These clauses become very important later on, for both lenders and borrowers.

Nowadays, there are individuals, financial institutions, corporations, and governmental organizations that provide people with loans.

Key Types Of Loan

  • The world’s biggest loan market is for home loans, also known as mortgages
  • Businesses will commonly use business loans for the reasons outlined in the next section
  • As the next largest typical consumer purchase after a home, car loans or auto loans are also a major category
  • The cost of education rises each year – and so does the size of the student loan market
  • For all other eventualities, and to make ends meet until payday, cash loans are becoming increasingly popular

Use Of Loans

Loans serve a wide array of economic purposes that may be mentioned as below:

  • Adding to the total money supply present in an economy
  • Introducing new products
  • Increasing competition
  • Increasing business operations

Loans also provide banks and other financial organizations, which deal in them, with a lot of revenue that is important for their sustenance.

Commercial Bank

A commercial bank is a type of financial organization that provides loans to individuals and business enterprises and also accepts deposits. Commercial banks are different from investment banks. Investment banks mainly perform the following functions:

  • Underwriting
  • Facilitating corporate reorganizations like mergers
  • Intermediating between issuers of securities to investors
  • Providing brokerage services to organizational clients

Examples of Loan in a sentence

He made a payment on his loan.
He got a loan of five thousand pounds.
Thank you for the loan of your lawnmower.
All loans from the library, whether books or audio material, must be returned within two weeks.

Cite Term

To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
Modern Language Association (MLA):
Loan. Payroll & Accounting Heaven Ltd. May 25, 2020
Chicago Manual of Style (CMS):
Loan. Payroll & Accounting Heaven Ltd. (accessed: May 25, 2020).
American Psychological Association (APA):
Loan. Retrieved May 25, 2020, from website:

Definition Sources

Definitions for Loan are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 28th March, 2020 | 3 Views.