What is loan?

A loan is when someone gives you money now, and you promise to pay them back later.

Imagine you want a new bicycle, but you don’t have enough coins in your piggy bank. Instead of saving for months, you ask your friend Alex if they can lend you $20 so you can buy it right away. You say, “I’ll give you $20 next week!” That’s like a loan, Alex gives you money now, and you pay them back later.

When you take a loan, you’re borrowing money from someone else. This could be a friend, a family member, or even a bank. In return, you agree to give them more money than what you borrowed, this extra part is called interest.

For example, if you borrow $20 and promise to pay back $22 in one week, the $2 you added is the interest. It’s like a thank-you gift for letting you use their money.

People take loans so they can buy things now instead of waiting to save up. It’s like getting a head start on something fun, but you have to remember to pay it back!