Have you ever been scared away from pulling the trigger on applying for a loan, making an investment, or even opening a checking account simply because you could not understand the financial jargon that was thrown at you? You are not alone.
In the financial world, there are so many different obscure terms uttered that it can be confusing for even the most financially savvy individual, but the truth is, the meanings behind the terms are pretty easy to comprehend. All it takes is a little explanation.
Are you lost in the sea of financial jargon? If so, this article will help you find your way back to shore by providing you with the explanations you need.
The borrower is the individual taking out the loan and is responsible for making all repayments when due. If you are applying for a loan, you are the borrower in the lending situation.
The lender is an individual or group, such as Simple Fast Loans, that lends money to an individual or business with the expectation that those funds are repaid in a responsible and timely manner.
The lender will assess the individual applying for the loan, check their creditworthiness, and will determine the interest rates and terms offered to the potential borrower.
The lender may sometimes be referred to as the holder of the loan or creditor depending on the financial institution.
Your credit score is a big factor in determining your creditworthiness. A credit score ranges from 300 to 850, with a higher number indicating a higher level of creditworthiness. Lenders of loans will first check your credit score when you apply for a loan to aid in the loan application process and help them determine an appropriate interest rate for the loan.
A credit score is not just some arbitrary figure, rather it is a reflection of your credit history. Many factors go into calculating your credit score, such as total debt you have incurred, types of debt, repayment history, number of accounts, and more. The essence of a credit score is to tell a story of how likely you are to pay off a loan in a responsible and timely manner. In other words, are you someone a lender wants to offer a loan to?
An individual with a credit score lower than 640 is typically considered a subprime borrower. Because this individual has a low credit score, if offered a loan, it will be at a higher interest rate to counter the risk the lender is taking on by lending to the individual, and the lender will often require a co-signer to sign on the loan with the borrower.
On the other hand, an individual with a score of 700 or higher is considered creditworthy. Typically, the higher the credit score, the lower the interest rate and the longer the repayment period. A lower interest rate means that the borrower will end up paying less money on interest over the life of the loan.
Several systems generate a credit score for an individual. However, the FICO score is the score most commonly accepted and used by lenders.
At Simple Fast Loans, a credit check is required for you to obtain a loan, such as an installment loan. A less than stellar credit will not prevent you from qualifying for a loan, even if you have been declined by other lenders in the past.
The interest rate is the amount the lender charges the borrower on top of the principal, which is the loan amount, to borrow from the lender.
The interest rate is reflected as a percentage of the principal, and it is because of this interest rate that the amount repaid by the borrower over the life of the loan will be more than the amount of money initially borrowed.
The lender charges an interest rate to be compensated for the loss of the money borrowed during the term of the loan. For instance, a lender that loans $50,000 to a borrower who will repay the loan over 15 years could have invested that same $50,000 elsewhere during those 15 years. Essentially, the interest rate is the lender’s cost of debt.
Though it might seem like the interest rates you are quoted are picked out of thin air, they are not. Instead, they are determined by many factors, namely the health of the economy. The Federal Reserve determines the interest rate by considering these factors and then the banks and other lending institutions use the interest rate set by the Federal Reserve to determine the ranges that they will offer on their loans. Though the ranges might differ depending on which lending institution you look at, they will all revolve around the interest rate set by the Federal Reserve.
As you are applying for a loan, remember that a lower-risk borrower, someone with a better credit score, will typically receive a lower interest rate on their loan and vice versa.
Otherwise known as the annual percentage rate, the APR refers to the total cost of your loan. This important distinction between the interest rate of your loan and the APR is one that many borrowers can get tripped up on.
When applying for a loan, you will be quoted an interest rate for that loan as well as an APR. The APR will always be a higher percentage rate. You must pay close attention to the APR, as it is the actual percentage rate you will be paying on the loan.
The APR is a combination of the interest rate on your loan as well as the fees the lender charges you as part of lending you the money. Several types of fees can go into the APR. Some of those fees include:
Just like any lending rate, the better your credit score, the lower the APR of your loan.
Now, to make matters a bit more confusing, there are two types of APRs. You may have heard of a variable-rate APR and a fixed-rate APR, but what is the difference?
At Simple Fast Loans, any fees that will be included in your APR will be available for you to review thoroughly before signing your loan documentation so that there are no surprises.
The term of your loan is the duration you will be repaying the debt. For instance, your loan could have a longer-term, such as 30 years, or a shorter term, such as 15 years. A person with a higher credit score is more likely to secure longer-term loans, which typically results in a lower monthly payment.
In some cases, the term is referred to as the "tenure of the loan." Whether your lender uses the phrase term or tenure, they are referring to the life of the loan.
With Simple Fast Loans, you will have the opportunity to take advantage of flexible loan repayment periods and there is no penalty for paying off early!
When reading your loan documentation, you may come across references to delinquency. This fancy and maybe scary word simply means that you, the borrower, have failed to make an installment payment when due.
The consequences for being delinquent vary by lender. However, being consistently delinquent will often lead to the borrower defaulting on the loan. Remember, failing to make payments on your debt promptly will negatively affect your credit score and impact your ability to receive credit in the future.
Defaulting on a loan means that you have consecutively missed payments on your loan in the manner agreed upon in the terms of the loan. When you default on a loan, this is a contractual breach, meaning the lender has the right to take legal action against you.
Simple Fast Loans has your best interests at heart. If you know that you will not be able to make your upcoming scheduled payments, reach out at least 48 hours before the next scheduled payment, and you can get an understanding of your options.
When applying for a loan, a lender may require that you provide some sort of collateral should you suddenly become unable to pay back the debt. Collateral is usually some type of physical asset, such as a home or land, that the lender can seize if you fail to make payments.
Are you ready for some good news? At Simple Fast Loans, you will never be asked to put up collateral to obtain a loan.
The promissory note is the legally binding contract between the lender and the borrower that states that the borrower will pay the lender back for the loan by a particular date that was agreed upon in the terms of the loan.
The lender and borrower will sign the promissory note before the loan is finalized.
After applying for a loan with Simple Fast Loans and after the agreement has been set up, you will sign your loan package online via e-sign. Make sure to read through your loan package before signing.
In some cases, once a loan has been closed and repayment has begun, principal and interest payments can be postponed for a specified period. This is called a deferment period. Often, the borrower must provide certain documentation determined by the lender to be eligible for deferment.
Simple Fast Loans makes applying for a loan as simple and quick as possible. The financial jargon used during the loan application process can be confusing, so hopefully, these few explanations will help clear things up and make you feel a bit more confident as you embark on the process!