In layman’s language, financing is a process of asking a person or a financial institution such as a commercial bank, to provide you with funds. The money is borrowed with a promise of repayment at a specific point in time.
Role of Banks in Financing
Under the financial system, the business of financing is allocated to banks and other financial institutions. They provide funds to individuals and businesses so as to help them fulfill their goals. Financing allows the customers to buy the products that are out of their immediate reach, for instance a car, an apartment etc..
Example
Lets make it easy by taking an example. Suppose there is a new car model that you really wish to buy but you do not have sufficient funds for the payment. In such as case, you can look for a bank that can finance the car for you. Once your request is approved, the car dealer will be paid through the bank. In return, you will be obliged to make monthly payments to the bank along with the additional fees i.e. the interest. Hence, financing not only gives a chance to the customers to fulfill their desires but also allows the financial institutions to earn interest on the loans provided.
