Loans, Insurance, and Mortgage explained

Some of most popular financial products that most of us have to have are Loans, Insurance, and Mortgage. Bankers sitting in the city, writing up definition and marketing material for these product usually litter them with financial jargon. Understanding the real meaning behind that jargon is not easy at all for a layman like you. Yes I just made an assumption about you, chances are I am right since you are on this website.

Loans explained

Loans ELI5 (Explain like I am 5) : Imagine taking a box of toys from your friend, but remember you have to give it back, either all at once or one toy at a time. That’s called a Loan.

Simple Explanation for Loans: When you borrow some money from a bank, credit union, loan company or any business where you have to sign a contract with some terms and conditions is called a loan. Typically you agree to pay back in installments. In most cases you also agree to pay some extra on top of original amount you borrowed, this is called interest.

Insurance explained

Insurance ELI5 (Explain like I am 5) : Imagine you have a box of toys and every month you ask your parents to put one toy in the safe box. In case in future if you lost your toy box, you could ask your parents to give you your safe box. This way if bad thing happens you are not out of toys.

Simple Explanation for Insurance: For people who want assurance against unexpected expenses, Insurance is a product that does this. Generally you pay a premium at a set frequency (Monthly / Annually) and the insurance provider promises to pay out when things go wrong. A simple example of it would be Motor Car Insurance. If you ever have an accident you do not have to worry about paying for ALL the damages. Insurance prices are very much dependent on how much “risky” the insurance provider (called underwriter) your situation is. In other words, more likely your chance of a damage or loss happening more you would need to pay for insurance.


For people who want to buy a house but do not have cash ready to buy would need a loan of some kind. In particular the Mortgage is kind of loan where the Bank or building society holds on to the papers of the house or other property until the whole loan is paid off. Generally this is laid out so customers feel like they are paying rent (or a bit more than rent). The length of the contract is usually 25 years.