What is a loan?
A loan is when a lender gives a certain amount of money to a borrower and the borrower agrees to pay back the amount within a certain time. If you’re considering taking out a loan, there are a few helpful terms to know:
- Principal amount: The total amount of money being borrowed. This could range from a few hundred dollars to thousands of dollars, depending on what the loan is for.
- Interest rate: The fee lenders charge borrowers to take out a loan. It will be presented as a percentage of the principal amount and will be paid back throughout the lifetime of the loan.
- Loan term: Borrowers must pay back the loan amount within a certain timeframe, called the loan term.
These terms all play a major role in determining how much a loan will cost in the long run. Remember, you will end up paying more than you borrow due to interest rates. If you need to figure out how much taking out a loan will cost you, use the calculator above.
How do I use the loan calculator?
Using the loan calculator above, input details such as the loan amount, expected interest rate, and loan term to find out your monthly loan payments and the total cost of the loan. Select Edit Formula to get more options.
If you’re not sure exactly what these parameters are yet, you can play around with different variables to get an idea of how much different loans could cost.
What are loans used for?
There are loans for so many different things. If you need to make a large purchase, cover the cost of an unexpected bill, or even secure financing between paychecks, loans can help. Different loans have different structures and fees, but some of the most common loan types are:
- Student loans
- Car loans
- Home loans
- Personal loans
- Boat loans
- Home improvement loans
- Business loans
- Debt consolidation loans
What is the difference between secured and unsecured loans?
When you start looking into loans, you may see the terms “secured” and “unsecured” often. A secured loan is one that is backed by collateral, such as a house, car, or business. If you fail to make monthly payments, the lender can take the collateral item from you as a way to pay back the loan.
An unsecured loan is not backed by collateral. These types of loans are considered “riskier” to lenders, so unsecured loans are usually only offered to borrowers with a good credit history.
How does loan interest work?
The way lenders make money is by charging interest on the loans they grant. If interest didn’t exist, lenders would have no incentive to give borrowers large sums of money. Interest rates are usually shown as a percentage value and can vary greatly.
Depending on the type of loan a borrower is applying for, as well as the borrower’s credit history, interest rates on loans can be anywhere from small single digits to double-digit amounts.
Personal loan rates can range from 10.3% to 32.0%, depending on your credit score. However, interest rates on mortgages are usually lower, sticking to single digits, with the average being 5.57%.
What happens if I default on a loan?
Defaulting on a loan is when a borrower fails to make their monthly payments or cannot repay the principal amount as agreed. This can happen on both secured and unsecured loan types.
If you default on a secured loan, the asset used as collateral will be confiscated by the lender, and you will lose ownership of that asset. Defaulting on an unsecured loan will tarnish your credit score, making it much more difficult to borrow money in the future.
How do I find a loan near me?
There are many ways to find a loan, often a quick online search is the best way to start. You can get loans through large banks, credit unions, or even online lenders. Be sure to compare lenders to find the one that has the most favorable interest rates and loan terms.
Beware of predatory lenders that charge outrageous fees and high interest rates. Predatory lenders usually have a relaxed application process and can get the loan to you very quickly, but they are not the best option for borrowers.
Can I get a loan with bad credit?
Borrowers with bad credit can still secure many types of loans. Lower credit scores often lead to loans with higher interest rates or loans that require collateral. However, it is possible to get a loan with bad credit.
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