Loan Terms You Must Know Before Applying for a Loan

Ever feel confused by new financial terms when applying for a loan? We all go black when we hear new words for the first time. When we talk about the terms we encounter while applying for a loan, our minds are more focused on completing the application as quickly as possible. We might skip important loan terms because of a word we need help understanding in our loan application and agreement to finish the loan application faster. We often give ourselves moments to wonder about the terms we skipped to read in our loan agreement.

To avoid future surprises about our loans, we must familiarise ourselves with these loan words in advance. Therefore, we present some popular loan terms with simple definitions to ease your last-moment confusion. Enjoy and read this blog to the end. General Loan Terms You Must Know Before Applying for a Loan

A B C D E I L P T

A

Annual Percentage Rate

An annual percentage rate is a numerical expression of the percentage of the total cost you pay at the end of a year, including the interest rate and additional fees.

Application Fee

A loan application fee is the charge you pay when proceeding with a loan at a financial institution. Loan application fees vary from lender to lender.

B

Bad Credit

Bad credit is a person's record of past failures to make timely payments on bills and loans, and the likelihood that they will delay or default on payments in the future.

C

Cash Advance

A cash advance refers to a short-term loan you take out from a traditional bank or lender.

Collateral

When you want to borrow money, and your loan requires collateral, you must put your valuables on hold with the lender if the debt is not repaid.

Cost of Borrowing

The term cost of borrowing is defined as the sum of interest and other costs incurred by a financial institution concerning the lending of funds.

Credit Report

Your credit report reflects your creditworthiness, capacity, and standing. It reflects a score based on your financial behaviour.

Credit Score

Your credit score reflects your overall financial behaviour regarding your bank account, loans, credit cards and repayments.

D

Debt Consolidation

Debt consolidation occurs when you take out a single personal loan to pay off your debts. This is an excellent idea for managing your finances: taking out a low-interest loan to consolidate your high-interest debts.

Direct Lending

Direct lending is done by lenders other than banks to provide loans to companies without requiring intermediaries such as an investment-backed private equity firm or a broker.

E

Electronic Funds Transfer

Electronic Funds Transfers are transactions you make via online (electronic) platforms where you can send or receive money directly into your bank account.

Equated Monthly Payment (EMI)

Equated monthly payment refers to the amount you pay each month, including a portion of the principal and interest, to complete your repayment.

I

Installment Loan

An installment loan is a credit account that provides a lump sum to be paid off over time in equal monthly payments. Personal loans, auto loans, mortgages and student loans are all examples of instalment loans. Installment loans typically have predictable monthly payments.

L

Loan Agreement

A loan Agreement is a document you will sign at the time of loan application that outlines details of your loan, such as the loan amount, cost of borrowing, additional fees, APR, repayment tenure, monthly instalments, prepayment penalties, and late payment fees.

P

Payday Loan

A payday loan is a high-interest, short-term loan that helps you manage your finances until you receive your next salary. It is to be paid when you receive your salary. You are only required to submit proof of identification, income proof and bank account details.

Prepayment Penalty

A prepayment penalty is the penalty you pay when you repay the entire loan amount before the end of your repayment cycle.

Principal Amount

The principal amount is the loan amount you have borrowed from a bank, a financial institution, or a lender.

T

Term

The loan term is the period of your monthly repayments during which you are required to repay your entire loan amount.