To get a grasp on a new to you financial concept, I recommend asking 3 questions:

1. What does it mean?

2. How does it work?

3. How can it change my life?

So let's start with the definition answering the question "What does it mean?"

Borrowing is a temporary possession of money with the intent to repay the amount borrowed. In a financial sense, if you borrow money, you assume a debt to the lender, this debt contains the principal amount plus interest.

Time to break that definition down. We have two parties when we talk about borrowing - we have the person who needs money (borrower) and the person who has money (lender). When a borrower asks for money and is approved for an amount they sign a contract that states how much time they have to pay the lender back, but they have to pay the original amount they borrowed plus interest back to the lender.

there are two major ways lenders calculate interest simple interest and amortize interest - you can read more about the differe...