Finance is the study of money and how it is used. Specifically, it deals with the questions of how an individual, company or government acquires the money needed - called capital in the company context - and how they then spend or invest that money.
Finance is, correspondingly, often split into three areas: personal finance, corporate finance and public finance.
A bank aggregates the activities of many borrowers and lenders. A bank accepts deposits from lenders, on which it pays interest. The bank then lends these deposits to borrowers. Banks allow borrowers and lenders, of different sizes, to coordinate their activity.
Finance is used by individuals (personal finance), by governments (public finance), by businesses (corporate finance), and by other organizations such as schools and non-profit organizations.
In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that debt until it is repaid as well as to repay the principal amount borrowed.
The document evidencing the debt (e.g., a promissory note) will normally specify, among other things, the principal amount of oney borrowed, the interest rate the lender is charging, and the date of repayment.
The interest provides an incentive
for the lender to engage in the loan. In a legal loan, each of these
obligations and restrictions is enforced by contract.
Acting as a provider of loans is one of the main activities of financial institutions such as banks and credit card companies.
A secured loan is a loan in which the borrower pledges some asset (e.g., a car or house) as collateral. A mortgage loan is a very common type of loan, used by many individuals to purchase residential property.
Unsecured loans are monetary loans that are not secured against the borrower's assets.
A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's promise to the card issuer to pay them for the amounts plus the other agreed charges. The card issuer (usually a bank) creates a revolving account and grants a line of credit to the cardholder, from which the cardholder can borrow money for payment to a merchant or as a cash advance. A credit card typically involves a third-party entity that pays the seller and is reimbursed by the buyer.