Several phrases often sound similar but have different meanings. The phrase loan term often creates confusion because it’s often used to refer to two aspects of a loan. When used in the singular form, the phrase means loan term length, and when used in the plural form, it implies loan terms and conditions. Let’s discuss the two meanings of Loan Term separately.
Loan Term (In the Context of Term Length)
You are expected to repay the loan amount within a fixed period in monthly installments when you borrow. This fixed time duration is called loan term length. For example, Auto loans often have five or six-year terms, although many other options are available. Car loans are often quoted in months, such as 60-month loans. A 30-year fixed-rate mortgage has a term of 30 years. Loans can last for any time agreed upon by the lender and the borrower.
While looking for loan options, you’ll usually have the opportunity to choose the loan term lengths depending on your credit score and the loan options available through the lender.
Loan Terms (In the Context of Terms & Conditions)
Loan Terms is generally used as a shorthand way to talk about the terms and conditions of a loan. The terms and conditions are the rules that define the way your loan works. When you borrow, you have to sign a loan agreement.
The loan agreement clearly outlines the terms and conditions of a loan. A loan agreement highlights the loan terms, such as annual percentage rate (APR), fees, due date, etc.
Why are Loan Terms Important When Applying for a Loan?
While applying for a loan, you should carefully read the loan terms and conditions and the loan term length. The terms and conditions are essential because of the following reasons:
- Terms and conditions of a loan include details such as the interest rate, monthly payment for your loan, method of repayment, and legal steps that can and will be taken in case of loan default. This information informs the borrower of the lender’s expectations for repayment.
- A loan agreement outlines the terms and conditions used as legal evidence by both the lender and the borrower to solve loan-related disputes.
- A written loan agreement highlights the terms and conditions making it impossible for the lender to modify any of the already agreed-upon terms and conditions later.
Does Loan Term Affect Interest Rate?
No, The loan term sets the interest rates; it doesn’t affect them. Long-term personal loans typically have lower interest rates and lower payments. Similarly, short-term loans have higher monthly payments. But much of this depends on the specifics of which loan terms and interest rates you’ve chosen.
Types of Loan Terms (Length) You Can Get
The loan term length varies depending on the type of loan. A list of the most commonly borrowed loans and their average loan term lengths for repayment has been given below:
Personal Loans
The personal loan term length typically ranges from 3-84 months.
Auto Loans
Your car loan could be between 36-80 months.
Mortgages
Most fixed-rate mortgage loans have a term of 30 years or 15 years. However, some lenders even offer 20 years to repay.
Student Loans
The tenure of repayment for student loans can range from 5-20 years.
Types of Loan Terms & Conditions That Need to be Checked
The following are the loan terms and conditions that you should check before agreeing to any loan:
Interest Rate
In simple terms, interest is the amount you pay to borrow money, whether it’s a mortgage, student loan, or credit card. When you have a loan or line of credit, you must pay back the original amount you borrowed and a percentage of that loan as interest. There are exceptions: if you have a promotional 0 percent interest rate or pay your credit card balance in full every month, you will not pay interest.
Loan Principal
The loan principal is the initial loan amount you borrowed from the lender. For instance, you get a loan for $50,000. Then the loan principal is $50,000. The principal amount partly determines the interest you must pay to clear the loan debt. As you repay the initial loan amount, the interest amount accrued each month gets reduced.
Loan Duration
Loan duration is the time you have to repay your loan debt. It starts from the date of the issuance of the loan amount and ends on the date on which the entire loan amount is to be fully repaid.
Fees
Fees include application, origination, closing, annual, and prepayment penalties or late fees.
Annual Percentage Rate (APR)
The APR is the total interest accrued annually on the initial loan amount. You can use the APR as a bottom-line number to compare different loan offers. It also highlights the total cost of paying back the loan annualized over one year. This will also help you to manage your finances properly as you can develop a budget around it.
Due Date
This is the fixed date you must make your monthly loan payment. This date is set across all months. If you fail to pay on the due date, you might have to pay late fees to the lender. The late fee is also mentioned in the loan agreement. If you repeatedly miss the due date of payment, it will affect your credit score too.
Can You Negotiate Your Loan Terms?
Yes, you can negotiate your loan terms by following the following steps:
- First, you need a sound knowledge of your loan terms and conditions to negotiate and get a better deal.
- Many lenders would ask you to go through the pre-qualification process. The pre-qualification process is whereby the lender reviews your financial status and then estimates the amount of money they can lend you. This process enables you to see what your terms and conditions would be before submitting your loan application.
- The more lenders you prequalify with, the easier it will be for you to compare the terms and conditions different lenders offer and choose the best option.
- Once you pick out the best loan offer, you can use it to attract an even better offer. You can take the loan offer to other lenders you have prequalified with and see whether they can offer you better terms. You can negotiate loan terms: the monthly payable amount, the APR, and the fees.
- You can use this negotiation strategy to attract the best loan offer on any loan. However, this negotiation policy works best in the case of car loans and mortgages. Since a mortgage loan is expensive, even a minor adjustment in the loan offer will be highly beneficial and help you save a decent amount in the long run.
Conclusion
Now that you have understood the difference between the two ways the phrase Loan Term can be used, read the loan terms and conditions and the loan term length before finalizing any loan agreement.
Also, obtaining any loan is a fairly complex process in itself. However, having a good credit history will allow you to choose several loan options. This is because the better your credit score is, the more lenders will be ready to lend you money.
Frequently Asked Questions
What loans can a person with poor credit get?
Many people have been turned away from getting a mortgage because they don’t have a perfect credit history. However, if you are willing to take on a home loan for someone who has had problems paying back the money, then many options are available to help them become successful homeowners.
A person’s income may determine whether they are eligible for a loan with low interest rates. People with bad credit scores can often get a loan at affordable rates by applying for adjustable-rate loans (ARMs).
Government programs, such as the USDA Rural Development Loan Program, offer loans to residents living outside metropolitan areas. These loans are offered to those who live in rural communities where access to markets is limited. The program provides long-term fixed interest rates between 3% and 6%.
Specialized commercial lending companies specialize in lending low-income borrowers loans. These companies may work with local banks, community development agencies, or other financial institutions. Some of these companies charge very little or no fees.
Cash App allows you borrowing money
Yes! The app lets you borrow money from close friends or family members. You can also pay them back with your funds if they don’t have enough cash.
The best part? The best part? It’s completely free! There are no fees to borrow or repay. But you do need an active account to take advantage of this feature.
Speedy Cash Can You Check Your Credit?
Many lenders use credit checks to protect their customers from fraud and help them find people who are not eligible for financing. But can they increase your chances in getting approved for loans?
Yes, that’s the short answer. There is evidence that consumer reports helped millions of Americans get home loans by avoiding predatory lending practices.
These reports can be expensive and may discourage borrowers who are looking for financial services.
Apart from a lender reviewing your file, credit scores can also be affected. Your score can drop if your payments are not on time or you miss several months of payments. This makes sense since missed payments reflect lousy credit history.
It is important to remember that not all lenders review your credit reports before approving your loan application. Some only check your credit once or twice during the application process, while others won’t even review your credit report.
You should ensure that you are fully aware of the information that is being shared about you before signing up for any type or loan. Are you willing to give out any financial information?
What is considered a hardship loan?
A hardship loan is a type mortgage in which you must prove that you are in an unplanned emergency and not just saving for it. This could happen if you lose your job or are seriously ill.
This loan may be the right one for you if you aren’t eligible for any other types of loans.
Statistics
- Cons Up to 8% origination fee (abcactionnews.com)
- If you’re preparing your bank account for the charges that WeLoans will cost to find a lender, put that thought aside because it’s 100% free. (abcactionnews.com)
- Those protections include a cap of 36 percent on the Military Annual Percentage Rate (MAPR) and other limitations on what lenders can charge for payday and other consumer loans. (consumerfinance.gov)
- In California, for example, a payday lender can charge a 14-day APR of 460% for a $100 loan.6 Finance charges on these loans also are a significant factor to consider, as the average fee is $15 per $100 loan.1 (investopedia.com)
- Unlike other personal loans, payday loans often feature interest rates ranging from 391% to 600%. (timesunion.com)
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How To
Types Of Emergency Loans Available for Bad Credit
There are many options for emergency loans for people with bad credit. You should consider which one is best for you. This article will explain the most popular types of emergency loans available to people with bad credit.
- Private Money Lender (PML Loan). A PML loan, which is a short term loan from a private lender, is available. They offer flexible repayment options and lend money at competitive rates. The main disadvantage is that they only lend up to PS25,000 per person.
- Merchant Cash Advance Loan. A merchant cash advance loan is a type of business loan that allows a business to borrow money for future sales from its website or stores. Their advantage is that they have longer terms than private lenders. They don’t require collateral and can be paid immediately if there’s not enough profit.
- Payday Loan. Payday loan companies offer short-term loans for small amounts. While repayments are due within 30 days of your next payday, payday lenders often allow borrowers the flexibility to roll over loans several times. Repayments can be charged high interest rates, from 400% to over 1000%.
- Personal Loan Personal loans are similar in nature to payday loans, however they are offered by larger institutions. Personal loans typically have higher interest rates, lower minimum payments requirements and stricter eligibility criteria.
- Bank Guarantee Loan. A bank guarantees loans. You don’t have worry about your ability to repay your loan. Once you have established that you live in the area and work there, you can apply to a bank guarantee for a loan.
- Car Title Loan. Car title loans can be borrowed money from a company who owns the car’s title. It is easy: simply hand over your car keys, sign paperwork and wait for the lender to approve your application. Once you have been approved, they keep your title as security.
- Personal Lines Insurance Policy Loan. You could use your existing life insurance as collateral to get a loan for personal lines insurance. Your insurer will write a new policy with a different beneficiary. Your existing beneficiaries will be paid less. A personal lines loan is only available if you can show proof that your income is sufficient.
- Small Business Administration Loan (SBA). SBA loans can be used by individuals, families as well as businesses. To qualify for an SBA loan, you must meet specific financial requirements and demonstrate that you can afford to repay the loan.
- Home Equity Line of Credit This refers to taking out a line of home equity credit. It allows homeowners over 18 years old who live on their property full-time or those under 25 years old who intend to live there within six months to quickly access a large amount of money.
- Commercial Real Estate Mortgage (CREM). Commercial real estate mortgages can be used to finance commercial properties, such as shopping centers or office buildings. CREMs also include tax lien, which aid banks and other creditors in recovering debts from delinquent payers.
