8 terms to check in your loan contract fine print
You have probably heard time and time again, be sure to read the fine print of your loan contract. Doing so helps you to ensure that you understand the terms of your contract, and eliminate any surprises down the road.
But, if you do not have a finance or business background, it may be a little confusing to read and thoroughly understand. To help you sign your loan contract with confidence, we came up with a list of commonly used terms you may come across while reading through your contract.
Interest rate is defined as the proportion of an amount loaned which a lender charges as interest to the borrower, typically displayed as an annual percentage. It is the rate a bank or other lender charges to borrow its money.
Annual Percentage Rate
Annual percentage rate, or APR, is a way of measuring the full cost a lender charges per year for funds. APR combines the total amount of interest payable and the cost of other fees and charges, averaged over the term of the loan and expressed as a percentage.
Fixed vs. Variable Rates
A fixed interest rate means that the rate you pay on a loan doesn’t fluctuate during your repayment period. When interest rates are low, it’s typically better to take out a fixed-rate loan rather than one with a variable rate. A variable rate is the opposite of fixed interest rate. The interest your lender is charging you can rise and fall when the market fluctuates.
Secured vs. Unsecured Loan
Securing lending is when the borrower is required to give the lender collateral as a form of insurance against defaulting on the loan. If the borrower defaults on the loan, the lender can seize the collateral to make up the loss. While an unsecured loan is a loan that is not backed by collateral to guarantee repayment. Lenders grant unsecured loans to creditworthy borrowers who pose a low risk of defaulting or not abiding by the terms of the loan.
Collateral describes the personal property or assets that a borrower offers to a lender to secure a loan. As part of the loan agreement, the borrower forfeits the asset to the lender if they stop making payments on the loan. Lenders refer to collateral loans as secured loans because the asset secures the funding.
Default Interest Rate
To be delinquent is to owe on an overdue debt. It may refer to an individual borrower or business with a contract specifying a payment schedule for a loan. Delinquency can negatively impact a borrower’s credit, and this gets worse the longer the balance remains unpaid.
A grace period is a period of time creditors give borrowers to make their payments before incurring a late charge or risk defaulting on the loan. There are two types of grace periods. The first refers to a period of time beyond the due date that the lender gives customers to make their payments. The second applies to a period of time when a creditor does not charge interest on the account balance.
Breach of Contract
In contract law, breach of contract, also called breach of agreement, refers to the violation of any term or condition of a binding agreement. It generally occurs when at least one party doesn’t fulfill his or her commitments under the contract. This breach could be anything from an incomplete job or a missing payment to more serious violations, such as not providing a bond when required or substituting substandard goods.