Loan Terminologies You Must Know

Posted On: 09-September-2022


Loans are what help you reach your goal. Personal loans are a common method of availing capital to fund an individual or business purposes. You can borrow from ESWARI CAPITAL either to find your higher education or a wedding or your home renovation, it can be anything.

With this loan glossary you'll be better able to understand this entire thing called Loan.

1. Collateral - Collateral is an asset that you can pledge to a lender for securing a loan. Common types of collateral include the assets that you own such as real estate, vehicles, cash and investments. For example, when you take out an auto loan or mortgage, the car or house is the asset that secures the loan. If you fail to repay your loan, the lender can repossess your car or foreclose on your home. Collateral is required on secured loans. It’s not required on unsecured loans.

2. Borrower - When you apply for a loan and receive funds, you are the borrower. As the borrower, you’ll have to repay the loan according to the loan terms agreed upon.

3. Annual Percentage Rate - The annual percentage rate (APR) is the total yearly cost of taking out a loan. This rate includes the interest rate, along with any other finance charges. For example, when you take out a personal loan, you might have to pay loan origination fees. If you were to only look at the loan’s interest rate, it would be lower because the loan origination fee isn’t included. The lender must tell you about the APR so that you're aware of how much it'll cost you to take a loan.

4. Co-borrower - When someone agrees to be jointly responsible for paying back a loan with you, that person is referred to as a co-borrower. For example, if you and your partner qualify for a mortgage loan together, you’d be co-borrowers. Lenders use both the primary borrower’s and the  co-borrower’s credit and income to qualify the applicants. If approved, both of your names would appear on the loan documents, and you would share ownership of the asset.

5. Credit Score - Before approving your loan, lenders will check your credit score to assess how risky of a borrower you are. Your credit score depends on payment history, current debt amount, credit history length, credit mix, new credit activity.

6. Interest Rate - When a loan has a fixed interest rate, the interest rate remains the same for the duration of the loan. Since the interest rate remains the same, the monthly payment doesn’t change. The predictable monthly payments make it easier for you to budget your loan payments.

7. Late Fee - If you make a past due payment on your loan, your lender may charge you a late fee. The amount of this late fee and when the lender charges it varies according to the lender. For example, some lenders might not charge you a late fee until your payment is 15 days late. This information can be found in your loan agreement.

8. Principal - The amount of money you agreed to borrow is considered the principal. As you repay your loan, the principal balance decreases. The principal amount does not include the interest you owe.