Out of nowhere your roof starts to leak or your car’s engine says goodbye, that’s when you start thinking about choosing a loan to get out of the fix. That’s why loans are more common and banks among other lending institutions are offering them in plenty.
But there’s a catch when you’re shopping around for a loan. There are a number of terms that come with loans that you have probably never heard of before and they are crucial in ensuring you have an easy time with your loan. You don’t have to dive deep into all the terms, just the crucial ones.
To learn more on the terms and why you should pay attention to them, you should read on. Up next we’re going to give you information on how these specific lending terms affect your loan and what you need to do about them.
Annual Percentage Rate
The first term that you need to be familiar with when it comes to lending is APR or in full, Annual Percentage Rate. This term refers to the interest rate that will be charged on your loan.
You can define APR as the cost of your loan calculated on an annual basis. When you look at interest, it’s quite narrow in some scenarios and it usually isn’t definitive. APR, on the other hand, is a more definitive cost of your loan in a year.
APR carries with it, other than interest, origination fees, documentation fee and more. And it varies with different lenders and in most cases the market value for the loan. Always ensure you check on the APR associated with the loan before going forward with any loan you want.
Line of Credit
If you’re at an advanced stage of taking up that loan, you are probably familiar with the term line of credit. Or you have seen it on documents or heard it being spoken and you are yet to have a clear idea of what it is about.
Well, this is where the creditor offers you revolving credit. This is where you are allowed to take up credit, pay for it and borrow again, over and over again. The line of credit is where you can borrow and pay only on what you withdraw on line of credit.
Before you take a loan, from most lenders, you have to pledge an asset to secure the loan. This can be anything from property to cars or any other asset that is valued higher than the loan you want to take out. Banks in most scenarios want an asset that appreciates in value to secure your loan.
The asset that you use to secure the loan is what is termed a collateral. Especially when you’re looking for a secured loan, which most are, you need to have assets to secure the loan. The rates for secured loans (loans that require collateral), are usually lower than the unsecured loans.
Before you move forward with your loan application, you have to take a second look at the loan term. This is how long it takes for you to be able to pay up the loan. This can be decided by you or in most cases the lender from which you seek to borrow from.
Most institutions have a time limit of how long it should take to pay every type of loan they offer. For example, a bank will have a time limit of 25 years for a mortgage. When you want to take a mortgage, you’ll have to decide how long you feel is comfortable for you to clear the loan.
There are a lot of considerations that the bank uses to finally settle how much time you have to pay the loan. The longer the loan term the more expensive your loan will be in the end, so you have to carefully consider the term before you take out the loan.
There are a number of lending terms that you need to familiarize yourself with before you take out any loan if you want a smooth ride. Above are a few that are quite common and that you should carefully review before going forward with your loan application as they can determine how much you pay at the end of your loan.