7.1. Basic Concepts
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## 7.1. Basic Concepts

A loan is defined as a financial transaction in which someone pays for the use of someone else's money. There are many familiar examples of loans: credits cards, auto loans, house mortgages, or a business loan.

### 7.1.1. Terminology

Before discussing tracking loan in GnuCash specifically, it will be helpful to present a glossary of terminology. The terms presented below represent some of the basic concepts found concerning loans. It is a good idea to become familiar with these terms, or at least, refer back to this list if you encounter an unfamiliar word in the later sections.

- Amortization - the repayment plan which will insure that a loan is eventually paid off, typically utilizing equal valued monthly payments.

- Borrower - the person or company that receives the money from a loan.

- Default - when a borrower fails to repay a loan according to the terms agreed upon with the lender.

- Deferment - a temporary delay in the repayment of a loan.

- Delinquency - is the term that refers to late payments.

- Disbursement - amount of the loan paid to the borrower. Some loans have multiple disbursements, meaning the borrower does not receive the full amount of the loan at one time.

- Interest - the expense charged by the lender to the borrower for the use of the money loaned. This is typically expressed in terms of a yearly percentage charged on the principal borrowed, known as the Annual Percentage Rate or APR.

- Lender - the company or person who lends money to a borrower.

- Loan Fee - a processing fee removed from the principal at the time the borrower receives a loan.

- Principal - the original amount of the loan, or the amount of the original loan that is still owed. When you make a monthly payment on a loan, part of the money pays the interest, and part pays the principal.

- Promissory Note - the legal agreement between the borrower and lender concerning the loan.

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