What is a loan?

A loan is defined as financial aid that must be repaid. This means that when an individual borrows money, they are entering into an agreement with a lender wherein they receive a sum of money upfront and, in return, agree to pay back that amount, often with interest, over a specified period. Loans can be used for various purposes, such as funding education, purchasing homes, or consolidating debt, but the critical aspect that distinguishes a loan from other forms of financial aid is the obligation to repay the borrowed funds.

In contrast, options that describe financial aid that does not require repayment, like grants or scholarships, would not be classified as loans. Additionally, programs offering academic awards or employment services do not involve the borrowing of funds, which further clarifies the distinct nature of a loan as a repayable financial obligation.