Outlook Money
Taking a loan is a major financial decision; borrowing one without knowing the common lending terms is a mistake. Here are some loan terms that can help you assess your options and choices before signing any loan agreement.
It is the original amount of money that you borrow from a lender (banks and Non-Banking Financial Companies). Interest is then calculated on this amount.
This is the percentage that is charged on the borrowed money. It determines how much extra you are supposed to pay on top of the principal.
Equated Monthly Instalment (EMI) is the fixed monthly amount you pay to repay your loan. It includes both the principal and the interest in smaller parts.
The total time given to repay the loan. A longer tenure reduces the EMI but increases the total interest paid on the borrowed amount.
A one-time charge that lenders take for evaluating and approving your loan application, which includes going through background checks, credit scores and the financial health of the individual.
Prepayment means paying off a part of the loan earlier than it is scheduled. Foreclosure refers to closing the entire loan before the tenure ends.
A fixed rate stays the same throughout the loan period. On the other hand, a floating rate changes depending on market conditions.
A numerical score that reflects your creditworthiness. A higher score increases the chances of loan approval and better interest rates, while a lower score can lead to rejection of loan applications.