Loan, credit, and interest

Loan: A thing that is borrowed, especially a sum of money that is expected to be paid back with interest.

Places that will loan money include:

• Banks
• Merchants
• Peer-to-Peer lenders

Types of loans:

• Payday Loans: Meant to give cash until the next payday.
• Title Loans: Short and expensive loans backed by the title of a vehicle, like a car, truck, or motorcycle.

Credit: The ability of a customer to obtain goods or services before payment, based on trust that payment will be made in the future.

Why might people use credit?

• Purchasing a car (any type of car).
• Buying a place to stay (apartment, condo, house).
• Getting an education (college, private school, law school, med school, etc.).
• Emergencies (car crashes, sickness, legal problems, etc.).

Interest: The amount of money paid to the lender for using their money. It is usually expressed as a percentage of the amount borrowed and charged over a period of time.

Example: If you loan $1,000 with a 10% interest rate, you would owe $1,100 back.