A loan gives you access to money when you need it — but it always comes at a cost. Understanding how loans work can save you from expensive mistakes.
- A loan is borrowed money — with interest. You borrow a set amount from a lender and agree to pay it back over time. But you don’t just return the money — you return it plus extra, called interest.
- Interest is the cost of borrowing. It’s usually a percentage of the loan amount, charged monthly or annually. Even small rates add up over time.
- Repayment terms matter. Look at the duration, monthly payments, and total cost. Some short-term loans with high rates can double what you owe in just months.
- Different types of loans exist. Personal loans, salary advances, business loans, student loans — each comes with different terms, rates, and requirements.
- Read the fine print. Watch for hidden fees, late payment penalties, or conditions that can change your rate. A small detail can cost you big money.
- Missing payments can hurt. Late or missed payments damage your credit score and may trigger extra fees, legal action, or account restrictions.
- Borrow with a plan. Don’t borrow just because you can. Know exactly how you’ll repay — and whether the loan will improve or damage your finances.
A loan is a tool — it can help or hurt depending on how you use it. Borrow smart, read everything, and make sure it fits your real needs and budget.