The word loan generally refers to a kind of credit agreement in which an amount of cash is lent out to another party to be repaid over a period of time. In most cases, the lending party also includes finance fees and interest on the original principal amount that the borrower has to repay as well as the monthly balance. When the terms of repayment end, then that loan has been repaid. However, the repayment can be accelerated if the terms are properly met.
There are many kinds of loans available to individuals and businesses. Loans can either be secured or unsecured. A secured loan is one in which borrowers pledge a property (house, car, etc.) as collateral.
Lenders will assess a borrower’s credit history and current financial circumstances before they approve a loan. The assessment is based upon the credit report issued by the three major credit reporting agencies, which are Equifax, Experian and TransUnion. Credit reports are used by financial institutions such as banks, mortgage companies and credit card issuers to determine the borrower’s eligibility for a loan. When assessing credit history, financial institutions use several criteria. The two most important factors considered by financial institutions when issuing loans are the credit history and current financial situation of the borrower. The financial situation is determined using information from the borrower’s bank account records, recent inquiries and outstanding credit card debts.
The loan terms are determined by these criteria. If a borrower has a poor credit history or has not established any significant income, he/she will most likely have high interest rates when given a loan. This is because the lender assumes that the borrower will default on the loan. If the financial institutions give loans with high interest rates to borrowers who have poor credit history, they will be making money from the interest rate even if the loan is not paid back. High-interest rate loans may be suitable for a high-risk individual, but not for a normal borrower.
Many financial institutions offer loans that have variable or adjustable interest rates. This means that the loan amount plus the interest rate can vary over time. A loan with a fixed interest rate is fixed for the entire loan term. A loan that has an adjustable interest rate is one that changes according to the index that is used to calculate the interest rate.
There are different types of fixed-rate loans. These include one, two and sometimes three or more type loans. A one-time fixed-rate loan means that the lender will not change the interest rate for the duration of the loan term. Two-time loans have a lower fixed-rate interest rate and are good for people who want to borrow large amounts of money over a short period of time. Three or four-year fixed-rate loans are fixed for the entire loan term.
Fixed-rate loans generally have longer loan term durations. This is because the borrower pays a lower interest rate for the full loan term. However, many financial institutions allow borrowers to choose shorter loan terms for the convenience of making payments on a weekly or bi-weekly basis.
Borrowers who need larger sums of money to purchase expensive items will typically benefit from a two or three-year loan. For instance, a borrower would pay more interest for a one-time payment if the loan was for a two-year period. This means that the borrower will save money in the long run because interest will not increase for the full length of the loan. Borrowers can choose the best payment options for their individual circumstances.