A loan is money borrowed from banks, financial institutions, private lenders or relatives to purchase a house, car, education or other items. When borrowing from a bank or financial institution the money is paid upfront for a purchased product and then paid back in installments with interest. The money borrowed is referred to as the 'principal' and an amount given up front is the 'down payment' -- anywhere from 10% to 20% of the purchase price.

The advantage of a loan is that it can used for emergencies or to fund other needs. Education loans along with house loans provide a maximum advantage if taken to further earning prospects and improving financial investments. But like everything else in life loans involve interests, returns and categories. The major categories are fixed rate loans, adjustable rate loans and a combination of both. In a fixed rate, the interest rate stays the same. This loan is popular, as it is not subjective to inflation and is easy to plan for. With adjustable-rate loans, the interest rate can change after a period of time. Hybrid or combination loans are a mix of both a fixed interest rate for s certain period of time changing over to higher or lower interest rates.

The loan plan needs to be carefully understood. A fixed rate loan is advisable if you are planning on staying in your home for ten or more years. An education loan is worth it if you feel that it will qualify you for a higher paying job.

There is a choice of private lenders, and the government also offers loan programs.