ELI5: What actually happens when you take a loan?

Taking a loan is like borrowing something from a friend, but usually with a small extra "thank you" fee.

Imagine you really want a big, shiny new bicycle that costs $100, but you only have $20 saved up. You can ask a bank (like a really, really big friend who has lots of money) for a loan of $80.

Here's what happens:

• The bank gives you the money: They lend you the $80 so you can buy your bicycle right away!
• You promise to pay it back: You don't just get the money for free! You sign a paper (called a loan agreement) promising to pay back the $80, plus a little extra as a thank you to the bank for letting you borrow their money. This extra is called interest.
• Paying back over time: Instead of paying the whole $80 (plus interest) back at once, you usually pay it back in small pieces every month. This is called making loan payments. So maybe you pay $10 each month until it's all paid off.
• What if you don't pay? If you don't pay back the money like you promised, the bank can get upset. They might charge you extra fees, and if you really don't pay, they might even take back the bicycle you bought with the money! This is why it's important to only borrow money you know you can pay back.