What you should know about your loan installment.
Posted On June 19, 2019
The first thing that we must be clear before applying for a loan is what our need for financing is and the possibilities we have to repay it. Once we know this, it is so important that we inform ourselves of the requirements and conditions that we must meet when we access the credit we need, as we understand why these conditions apply to us. Therefore, it is essential that we familiarize ourselves with a series of concepts that allow us to understand, for example, what is behind our loan installment.
But what exactly is this fee? We could define it as the money that the borrower must pay to the investor periodically, until he returns the total amount borrowed, plus interest arising from the credit.
In this post we tell you what you should know about the real cost of your loan:
Capital or principal:
This is the amount we need to finance ourselves, which the investor lends us and on which the interest on the loan is calculated. This is the amount that is going to be amortized in the term set. It decreases as the amount borrowed is paid. The higher this amount, there is a greater risk when it comes back and therefore increases the loan fee. The same in the opposite direction, the smaller the amount, the lower the risk and the fee decreases.
Term or duration:
It is the period of time that the loan lasts. Depending on the duration we can talk about short, medium and long term loans. The duration of the loan influences the total amount to be repaid. The longer the duration, the payments will be smaller because they will last longer, but the cost of interest and the total amount of repayment will be greater than if it is a short-term loan.
It is the percentage that is applied to the principal capital and that corresponds to the profitability of the investor. The higher the interest rate, the higher the cost of the requested amount and therefore, the loan installment will increase. When comparing a loan with another, do not confuse the nominal interest with the APR. The latter is the one that allows us to compare the interests between the different loan options, not considering the expenses and commissions added.
Refers to the terms in which we pay the loan fee. Depending on the type of credit, it is normal for monthly, semi-annual or annual repayment periods to be established. The shorter the repayment term, the lower the fee. Depending on our ability to return we will be more interested in one option or another.
In the case of resorting to the traditional financing system, it is necessary to take into account a series of added concepts such as: the study of financing, the contracting of insurance, maintenance fees, use of credit cards, etc. They will increase the fee the borrower must pay. Participatory financing platforms eliminate these added expenses and minimize the cost of our loan.