Which statement best describes a loan?

A loan is fundamentally defined as funds that are borrowed and must be repaid, usually with interest. This means that when an individual or entity takes out a loan, they receive a specific amount of money from a lender with the obligation to return that amount over time, often accompanied by an additional cost in the form of interest. This relationship between the borrower and the lender is central to understanding loans, as it involves not only the principal amount borrowed but also the terms of repayment, including any interest, fees, and potential penalties for late payments.

The other choices do not encapsulate the nature of a loan. For instance, an investment with guaranteed returns implies a level of certainty and stability that is not inherent in loans, as they carry risks associated with repayment ability. Similarly, a non-repayable financial gift does not align with the concept of borrowing, as loans are expected to be paid back. Lastly, insurance premiums paid in installments refer to a different financial concept unrelated to the borrowing of funds, as they are payments made for risk coverage rather than a debtor-creditor relationship. Thus, the second option accurately captures the core characteristics of a loan.