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What are the basic terms of a loan?
Applying for a loan to cope with unexpected expenses can be a smart decision. A loan can easily help you to cover car repair expenses or medical bills. However, you always need to borrow wisely and thoroughly analyze offered terms and rates. In order not to improve your financial situation learn basic terms of a loan.
Loan
A loan is a sum of money that an individual or a company borrows from a financial organization or a direct lender. By signing a contract, the borrower agrees to keep an agreement and refinance the loan on time and in full.
Borrower
An applicant in other words. It is a person who applies for a loan. As a borrower you have to pay back the loan according to the agreement.
Application
It is the form used by a borrower to apply for a loan. Through a loan lender analyzes all the key details of borrower’s credit history. The application is important because it helps to understand whether you are able to repay the loan on time.
Approval
It is a statement made by the lender to inform the potential applicant, that he is worth taking out money.
Lender
A lender is a party or a financial organization that provides funds to a person or business. The funds must be repaid on time. Repayment includes the principal part and fees.
Personal Loan Glossary
APR
Annual Percentage Rate is a cost that a debtor pays to take away the loan.
Credit Score
It is a number from 300 to 850 that reflects a borrower’s ability to repay the loan in full and on time. The higher the score the more likely you will be approved for a loan with good terms and fees.
Collateral
It is an asset that a lender requires to provide in order to secure the loan. It may be a real estate, your vehicle or any other type of asset. The kind of a collateral usually depends on the type of your loan.
Creditworthiness
It is the ability of a borrower to repay the loan on time and fully. One’s creditworthiness is based upon several factors. Your credit history and steady source of income are among them.
Interest
It is a sum that a lender charges a debtor for borrowing money. It is an additional sum on top of the principal amount of money.
Debt Consolidation
Debt consolidation is a process of uniting several credits into one credit. It is made for the convenience of a borrower and helps to avoid paying off multiple debts each month. Several debts are rolled into one payment from a single lender.
Medical Loans
It is a type of the loan, the only purpose of which is covering medical expenses. Medical loans are unsecured and do not need any collateral.
Loans for Relocation
It is also called a moving loan. This kind of a loan is used to pay for moving your household. The relocation may be across the country or city. Loans for relocaton are usually unsecured.
Loan agreement
It is a contract between two parties: a financial organization or a lender and a borrower. This document regulates the relations between two sides.
Home Improvement Loans
Home Improvement loans are loans used to cover expenses for repairs and upgrades of your house. This loan doesn’t require any collateral.
Loans for Wedding
It is a kind of loan helping to cover wedding costs. Loans for Wedding are unsecured type of loan and doesn’t require any collateral.
Principal
Principal amount of a loan is a sum of money you take out and originally agree to pay it back. You make monthly payments to reduce what you have borrowed. Mind the fact, that any loan includes interest and only a part of your monthly payment goes to cover the principal.
Term
Term is a period of time of the loan life. There are two types of loans: short-term and long-term loans. Simply saying, it is a number of months you have to refund the loan.
Prepayment Fee
Prepayment penalty is the fee that a lender charges when you refund the loan early. However, not all the lenders charge this kind of additional fee.
Prequalification
It is a process of estimation of a borrower’s chances to receive this or that kind of loan. It is based on the information you provide. The lender estimates your creditworthiness.
Why is a Personal loan a good idea?
This kind of loans can be used for literally any purpose. Medical bills, home improvements and car repair can be financed with a personal loan. If your credit score is high enough, you can expect lower rates and fees from a lender. Choose wisely and you will have a chance to improve your credit history.