loan, in business, sum of money borrowed at a particular interest rate. More generally, it refers to anything given on condition of its return or repayment of its equivalent. A loan may be acknowledged by a bond, a promissory note, or a mere oral promise to repay. Because of biblical injunctions against usury, the early Christian church forbade the taking of interest. In feudal European society, loans were little needed by the great mass of relatively self-sufficient and noncommercial peasants and serfs, but kings, nobles, and ecclesiastics were heavy borrowers for personal expenditures. Merchants and other townsmen, especially the Jews, were the moneylenders, and various devices were found for circumventing the prohibition of usury. With the rise of a commercial society, restrictions on the taking of interest were gradually relaxed. Today, banks and finance companies make most loans, usually on collateral , such as stocks, personal effects, and mortgages on land and other property, or on assignments of wages. Credit unions have attained some importance in making personal loans at relatively low interest rates, and microcredit programs and organizations, which offer small-scale loans, have proved useful, particularly in developing countries, in helping individuals to establish small businesses. The 21st cent. has seen the rise of so-called peer-to-peer lending, in which companies use the Internet to match lenders with borrowers. Focusing on smaller personal and business loans, peer-to-peer lending has developed in part because investors faced lower interest rates on bonds and money-market funds in the aftermath of the recession of 2007–9. A pawnbroker lends money on the security of articles left in his shop.
The Columbia Electronic Encyclopedia, 6th ed. Copyright © 2012, Columbia University Press. All rights reserved.
See more Encyclopedia articles on: Money, Banking, and Investment