What is Loan ?

 

Definition of Loan

Sum of money borrowed for some time period and give back after that time period with some interest is called as Loan.
In loan the person who gives money is called as Lender.
In loan the person who takes money is called as Borrower.
The amount which is taken in loan is known as Principle Amount.
The extra amount paid along with principle amount is known as Interest.
The period of time for which loan is taken is called as Time Period.
The rate which decides the interest to be taken is known as Rate of Interest. 

Simple Examples of Loan

• A person named Adam take some money from a bank say Federal Bank and pay back it to bank after one year with some interest.

• A Student take some money from bank called education loan to complete his university degree.

LOAN

Formula To Calculate Simple Interest

Interest = Principle Amount * Rate * Time Period / 100
or,
    I = PRT/100

Question Answer to understand Loan

Question : Adam take 500 rupees as a loan for 5 year at the rate of 2% per year, what is interest?
Answer : given P = 500,  R = 2, T = 5, I = ?
put these value in formula we get,
I = 500*2*5/100
I = 50
Interest is 50 rupees and total amount to be paid after 5 year is principle plus interest which is 500+50 = 550