What You Need to Know About a Loan
A loan is money you borrow and agree to pay back, plus interest. You can get a loan from banks, credit unions, online lenders or even other people such as friends and family. The main types of loans are mortgages, auto loans and personal loans. Each type of loan has different requirements and fees but most have similar features.
A lender is whoever is lending you the money for your loan. They can be a bank, credit union or other financial institution. Your lender is responsible for the process of reviewing your loan application and assessing your financial risk. They are also responsible for servicing your loan, which means managing your payments and responding to any questions or concerns you may have. Your lender will usually perform these services in-house but some companies outsource these functions to other institutions.
During the loan process, you will be required to fill out an application and provide information such as your employment status, income and other financial data. Your lender will then verify this information and approve or decline your loan request. If you’re approved, the loan agreement will outline the specific terms of your borrowing including the amount of money you owe, the repayment schedule and fees.
The term of your loan is the lifespan of your loan, which is how long you have to repay the entire sum of money borrowed, plus any interest charges. The term of a loan can vary from a few weeks to several years, depending on the type of loan and your creditworthiness. For example, a personal loan typically has a 60-month term whereas a mortgage might have a 30-year term.
Your repayment schedule, which is the breakdown of your monthly repayments and when they are due, is another important feature to consider when choosing a lender. You’ll want to make sure you can afford the regular monthly payment and that your loan will be paid off within your desired time frame. You should also be aware of any prepayment penalties, which are fees that the lender might charge if you pay off your loan before its full term has elapsed.
There are many things to keep in mind when shopping for a loan, and it’s important to take your time and compare offers before making a decision. It’s also essential to avoid predatory lenders, who are companies that impose unfair and abusive loan terms on their customers. To help protect yourself, be on the lookout for warning signs such as high interest rates, hidden fees and deception on paperwork.
Jennifer Brozic is a freelance financial services writer who is passionate about helping consumers understand the often confusing world of finance. She has a bachelor’s degree in journalism from the University of Maryland and a master’s degree in communication management from Towson University. She is committed to providing trustworthy, unbiased content that helps her readers achieve their financial goals. You can find more of her work on her blog, The Credit Pros.