Loans 101

Nowadays, one can easily borrow funds via Instant Decision Loans. However, a lot of people are not sufficiently informed about how these mechanisms work. Therefore, we will define a few terms that are commonly encountered when applying for such.

First, let us define the term credit score. A credit score indicates a borrower’s potential credit risk. It is the likelihood that a debtor will repay the amount owed – a higher credit score means a better capacity to do so. These are usually computed using the FICO system, based on information that is collected and reported by the three major credit reporting agencies – Equifax, TransUnion, and Experian.

Next is the term “Principal”. It is the amount of money borrowed, which is determined by several factors – the borrower’s credit risk, federal regulations, and the actual amount that the borrower wishes to get. It is the amount on which the actual monetary value of interest is based. The bigger the principal, the bigger the interest. Hence, it is advisable to borrow no more than what is needed.

Third, let’s talk about APR. The APR, or Annual Percentage Rate, denotes the rate of interest that will be applied to a certain loan. To get the estimated interest per month, it is divided by a factor of 12, which is the number of months in a year. The APR is dependent on the type of loan and the credit score of the borrower. Some banks offer APR promotions like 0% for a certain time for a certain amount.

Lastly is the payment term. A payment term refers to the time allotted for the borrower to repay his or her loan. If the debtor is unable to repay the total amount of the loan within this specified period, the load is said to have “defaulted”. This is a harsh realoty not only for instant decision loan borrowes, but also debtors in general.

Learning the meaning of these basic terms is essential is one important step towards fostering financial responsibility. This is not only important for the person concerned, but also for the general well-being of the national economy.