Why do you get a loan?

Answer 1

The purpose of getting a loan is when you need something but currently lack the funds to purchase. If you get approved for a loan, the bank gives you the money and you agree to pay it off within a certain time in payments, and with interest. Interest is essentially a fee you pay to get the privilege to borrow. Banks lend out money so they can make more money back.

Typical things that people use loans to purchase includes vehicles, land, houses, boats, college education, etc. Banks may have some control over what you purchase, and they may require you to have insurance on the items. The reason for this is if you get behind on payments and they have to repossess whatever, then the item or property would need to be in good shape for resale, or they would need to be able to collect on the insurance taken out. So if you borrow to buy a car, not only would you need liability insurance as required by law to operate the vehicle, you would need collision coverage as well. That way, if an uninsured driver hits you and totals the car while the car is still owned by the bank, then the bank won't be out what they loaned you should you default on the loan.