Decoding the Fine Print of Personal and Business Loans

Decoding the Fine Print of Personal and Business Loans

For many people, borrowing lump sums of money happens only infrequently. In fact, it’s sensible to avoid borrowing money except when it’s absolutely necessary. Loans must be paid back, and there is always the factor of interest adding to the amount that must be repaid. Because we don’t apply for and receive loans every day, it’s easy to forget about some of the terms that are relevant to the true nature of the loan. Here are some of the most important loan terms that you might have forgotten about, or may be evaluating for the very first time.

Interest rate differentials (IRD) are important for those who have a mortgage or are preparing to have one for the first time. If you ever want to pay your mortgage loan off early, you will likely be charged an interest rate differential fee. Different lenders calculate these fees differently, so you should understand what yours would be before you take out the loan. This comes into play most often when people sell their home, using the proceeds to pay off the remaining balance of that mortgage.

Pre-approval is an important part of buying a new home. You won’t be able to make a formal offer without it in most cases. However, pre-approval is not the same thing as approval. Once you decide you want to take out the loan to make the purchase or investment, the lender will take a hard look at your personal or business finances. Then and only then will you be formally approved. A pre-approval is a nice thing to have, but it’s not everything.

Pre-payments are payments that you can make before you start your normal monthly payments right after you get a loan for the first time. These payments will reduce the total balance that will need to be paid off, and thereby the total interest that will need to be repaid will also be reduced. These early payments don’t eliminate monthly payments, they just cut down on the total amount that you’ll need to pay over the lifetime of your loan.

Credit reporting is an important part of all lending. When you apply for a mortgage loan from a bank, for example, the bank will “pull” your credit. This means that they will look at the score that is tabulated by the three independent credit reporting agencies. These simple three-digit numbers will give the lender a good idea about your ability to handle credit. However, some lenders don’t pull your credit. Having financial institutions check your credit too frequently will make your credit score go down, because it will appear that you’re overeager to borrow money. Better to have this done only once in awhile, or suffer the consequences.

There are many details in the fine print of your lending contract. Make sure to evaluate these points before signing on the dotted lines. If you understand your loan before you sign it, you will not have any unpleasant surprises down the road. All the best luck in finding the loan for you!

For many people, borrowing lump sums of money happens only infrequently. In fact, it’s sensible to avoid borrowing money except when it’s absolutely necessary. Loans must be paid back, and there is always the factor of interest adding to the amount that must be repaid. Because we don’t apply for and receive loans every day, it’s easy to forget about some of the terms that are relevant to the true nature of the loan. Here are some of the most important loan terms that you might have forgotten about, or may be evaluating for the very first time.

Interest rate differentials (IRD) are important for those who have a mortgage or are preparing to have one for the first time. If you ever want to pay your mortgage loan off early, you will likely be charged an interest rate differential fee. Different lenders calculate these fees differently, so you should understand what yours would be before you take out the loan. This comes into play most often when people sell their home, using the proceeds to pay off the remaining balance of that mortgage.

Pre-approval is an important part of buying a new home. You won’t be able to make a formal offer without it in most cases. However, pre-approval is not the same thing as approval. Once you decide you want to take out the loan to make the purchase or investment, the lender will take a hard look at your personal or business finances. Then and only then will you be formally approved. A pre-approval is a nice thing to have, but it’s not everything.

Pre-payments are payments that you can make before you start your normal monthly payments right after you get a loan for the first time. These payments will reduce the total balance that will need to be paid off, and thereby the total interest that will need to be repaid will also be reduced. These early payments don’t eliminate monthly payments, they just cut down on the total amount that you’ll need to pay over the lifetime of your loan.

Credit reporting is an important part of all lending. When you apply for a mortgage loan from a bank, for example, the bank will “pull” your credit. This means that they will look at the score that is tabulated by the three independent credit reporting agencies. These simple three-digit numbers will give the lender a good idea about your ability to handle credit. However, some lenders don’t pull your credit. Having financial institutions check your credit too frequently will make your credit score go down, because it will appear that you’re overeager to borrow money. Better to have this done only once in awhile, or suffer the consequences.

There are many details in the fine print of your lending contract. Make sure to evaluate these points before signing on the dotted lines. If you understand your loan before you sign it, you will not have any unpleasant surprises down the road. All the best luck in finding the loan for you!

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