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What is a Loan? A Simple Explanation of Borrowing for Kids, Teens and Beginners

Introduction to Borrowing and Loans for Kids and Teens

This video explains the concept of a loan in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about loans, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.

What is a Loan - A Simple Explanation of Borrowing for Kids Teens and Beginners
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Suitable for students from grade levels:

  • Kindergarten
  • Elementary School
  • Middle School
  • High School

The topics covered are:

Borrowing and Loan for Kids Teens and Beginners
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What is a loan?

A loan is money that you borrow from someone for a specific purpose or an unforeseen event with a promise to pay back.

When you borrow the money, you incur a debt and have to pay the money back to the lender over time, and a little extra money – called interest.

Who can give me a loan?

Loans to individuals are typically offered by banks and credit unions.

You have to fill out a loan application giving details like your income, monthly expenses, credit score, and credit history. These factors impact the lender’s decision on the loan, including the rate of interest.

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Why would I want to take a loan?

There are many reasons someone might need to take a loan. These include paying for college, buying a house, paying for a wedding, and buying a car.

How do I repay the loan?

You repay a loan through monthly payments or installments.

Over a set period of time – called the term of the loan – you pay back the money you are lent, with interest.

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Are there different types of loans?

Borrowing for Kids Teens and Beginners - Types of Loans
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Loans can be broadly categorized into two types.

  1. Secured loans, like mortgage or car loans, where the lender needs the loan to be backed by an asset, like a house or car, which is called a collateral.
  2. Unsecured loans, like student loans and personal loans, where there is no collateral requirement from the lender.

Typically, secured loans have lower rates of interest than unsecured loans as the collateral makes them less risky for the lender.

We have separate videos covering Mortgages, Student loans, and Personal Loans in detail.

Video Featured in the Below Financial Literacy Course for Kids & Teens

Download Transcript: Ideal for Use by Teachers in their Lesson Plan to Teach Kids & Teens

What is a Loan
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