A loan represents a financial agreement between a borrower and a lender, where the borrower receives a specified sum of money (known as the principal) that must be repaid at a later date. Loans generally fall into one of three main categories:
- Amortized Loan: Involves regular, fixed payments made periodically until the loan is fully paid off.
- Deferred Payment Loan: Requires a single lump-sum repayment at the end of the loan term.
- Bond: Entails a predetermined lump-sum payment at maturity, referred to as the bond’s face or par value.
Each type of loan has its own characteristics and repayment structure, tailored to meet different financial needs and goals.