A look at loan basics

loans

The term loan is broad and encompasses different types of loans. However, while we have access to different types of loans, the truth of the matter is that all loans ascribe to the same building blocks. We are going to explore these building blocks with the sole aim of ensuring that you understand them and that you make the right and informed decision before applying for one.

  • Eligibility

The term eligibility basically refers to the set of minimum requirements that you must meet before you can be deemed qualified for application of a given loan. Generally, eligibility requirements differ from one loan to the other. For instance, the eligibility requirements for a logbook loan are quite different from those of a payday loan. Understanding eligibility is therefore of essence before applying for any given type of loan.

  • Interest rates

Interest rates refer to the amount of money lenders charge on loans advanced. Different loans attract different interest rates based on the type of loan, amount as well as term of the loan. Before applying for a loan, understand what the interest rate is as well as how it will affect the overall amount of money you will repay in the long run.

  • Original fees

A loans original fee is as simple and straightforward as the processing fee of the loan. It’s simply the amount of money you pay to facilitate processing of the loan.

  • Repayment terms

Repayment terms simply refer to mode of repayment. Different loans have different repayment terms. There are loans that require repayment within a year while there are loans that require repayment for over a year. Repayment terms are instrumental as they make you have an idea of when you will begin making repayments, the duration of the loan and the amount you will be paying monthly.

  • Loan limits

This simply refers to the maximum amount of money you can apply for any given kind of loan. For instance, the maximum amount of money you can apply for a day loan greatly differs with the kind you can apply for a logbook loan.

  • Borrower incentive programs

As the name suggests, this is an incentive program that a number of lenders offer for say, early repayment of a loan. For instance, there are lenders who are willing to offer you a relatively lower interest rate if you set up direct debit for repayment of loans. An understanding of this is instrumental in helping you make an informed decision.

  • Promissory note

As the name suggests, this is basically a contract between your lender and you promising to pay the loan extended to you at a determine date. For instance, if you are applying for federal loans or student loans, you are required to sign a promissory note which binds you and basically specify what your responsibilities are under the terms of the loan.

To sum it up, learning the loan basics and the terms that are commonly used are essentially towards making the right call in so far as application of loans are concerned.

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