Some Personal Loans Terms you should know
posted on Mar 13, 2020 | 442 likes
Before you apply for that loan, understand these loan jargons
As you surf the internet in search of a suitable personal loan provider to help you with quick funds to sort out emergency needs, you will stumble on a lot of jargons in the financial services industry.
Lenders will always refer you to their terms and conditions before you sign the loan form, but the terms and conditions are also filled with these terminologies that might seem strange to you – well, maybe they are strange – to you.
Understanding the terminology in a loan application before you apply empowers you to get a personal loan at the best rate available, decide what kind of loan and lender are right for you, and grasp all the terms and conditions of a loan with ease.
If you are reading this and have been in this situation before, then you are in luck because we have made it easy for you by highlighting some of the very important terminologies that you need to know.
We don’t expect you to memorize all of these, so feel free to bookmark this article for any time you need a loan vocabulary refresher.
Annual Percentage Rate (APR)
An annual percentage rate (APR) is the annual rate charged for borrowing or earned through an investment. APR is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan.
A person's creditworthiness is a creditor's assessment of an applicant's ability to repay their debt in the future based on several factors. Check out our related article on understanding your credit score for more details.
Debt consolidation is a manner of debt refinancing that involves taking out a personal loan to pay off one or more debts. Typically, this is done to simplify multiple monthly payments into one loan payment and save money by having a lower interest rate.
When you fail to repay your loan according to the terms laid out on your loan agreement, you are labeled a defaulter or said to be a defaulter.
You should do whatever it takes legitimately to not ever be in this category of borrowers. It’s the worst thing that can happen to your credit score.
Accounts are considered delinquent upon failure to make the minimum monthly payment by the most recent due date followed by failure to take action once contacted by the creditor 30 days after the missed payment. If the account is delinquent more than 60 days, creditors will begin the process of turning the account over to third-party debt collectors. Delinquency can have a major negative impact on a borrower’s credit rating and score, with additional decreases the longer the payments remain outstanding. Additionally, fees and penalties may be charged by creditors for delinquencies.
Fixed Interest Rates
When an interest rate is fixed, it means that the interest rate agreed upon at the time of approval will not change for a predetermined amount of time. Whether that amount of time is a portion of the loan term or its entirety depends on the terms and conditions of the particular loan.
Not all lenders adopt this interest rate approach, some use the varied interest rate approach where your rates are dependent on some factors.
You need to watch out for this and consider how the repayment plays out in your monthly income.
An installment loan is a financial product that allows individuals to borrow a sum of money and repay it over time. The loan usually carries a fixed amount of interest rate and would require the borrowing party to make periodic payments.
Our personal loan is an example of installment loans
Interest or Interest Rate
The interest of a loan is what you pay to borrow that amount of money. An interest rate is a percentage of the loan amount itself and does not account for any additional charges or fees.
Some lenders charge an origination fee for submitting their loan application and granting the loan. The fee is typically calculated as a percentage of the principal loan amount.
At Page we do not charge any origination fees you only pay interest on the amount you are borrowed; this is one of our differentiating edge.
When you pay off all or a portion of your loan earlier than the scheduled term, some lenders may charge you a prepayment penalty: a fee that compensates the lender for the interest you didn't pay because you made a smaller number of payments than expected.
As the name suggests, the prime rate is the best (i.e., lowest) interest rate a lender can charge a borrower. Prime rates vary from lender to lender and are offered to applicants with excellent credit.
Principal is the total sum of money borrowed and does not include interest. As you pay off the loan, the principal will decrease.
Repayment Term or Tenor
A repayment term is the length of time a borrower has to pay back their loan in full.
Secured loans, such as auto loans and mortgages, are typically backed by collateral (e.g. your house, car, etc.). If you do not repay the loan per the terms of the lender agreement, your lender can collect your collateral as a form of payment.
Unsecured loans, such as personal loans, are not backed by collateral.
Variable Interest Rates
Variable interest rates are subject to change during the loan term and are often tied to a lender's prime rate. If your lender is offering you a variable interest rate, your loan agreement should note how this rate is calculated and the specific circumstances that will cause it to change.
Are you already feeling confident about applying and reviewing your loan terms? That is because this handy glossary was designed to give you a view adequate understanding to read and understand loan terms and conditions.
Make sure you fully understand the terms of any loan before you sign anything, and do not hesitate to contact us if you have additional questions or need clarifications on any clause. We can be reached via phone on 01-631(PAGE)7243 or email at firstname.lastname@example.org
Another thing to note is that these terms change due to regulations and upgrades, you need to visit the lender’s terms and conditions’ page often and never assume that things are the same.
At Page Financials, we want to make sure that your personal loan will help you achieve your financial goals.
Click here to read our full terms and conditions, or click here to apply online right now. If you have questions at any time during the application process, our customer care professionals are just a phone call away on 016317243.