If you're new to the world of loans, all the terms and jargon can be hard to understand. There are a lot of terms to learn, and if you don't know some of them, you won't be able to find the best loan deal for your needs. If you want to learn more, here is a list of some of the most important loan terms you may need to know.
Advance
When you take out a loan to get money, the money you get is called an advance. The size of your loan advance depends on how much money you want to borrow. It's called an advance because you get the cash before you have to pay for it.
APR
The amount of interest you pay on your loan is called the Annual Percentage Rate, or APR. This number is written as a percentage and is the total amount you pay each year. Since APR is a standard measurement for all loans, it is one of the most important things to look at when comparing loans. The interest on a loan will cost less if the APR is low.
Scores for credit
Credit scoring is a way for lenders to decide if they will lend you money. They ask you a series of questions about your job and your money. Each answer you give is given a score, and the higher your score, the more likely it is that you will be given a loan. If your score isn't good, you may not get the loan you want.
Guaranteed loan
A loan that is backed by something of value is called a "secured loan." Collateral is a high-value item that you use to get a loan. If you can't pay back the loan, the lender can take the item and sell it to get their money back. Most of the time, your home or other property is used as collateral for a secured loan. Secured loans have lower interest rates than unsecured loans, but if you don't pay back the loan on time, you could lose your home.
Unguaranteed loan
The opposite of a secured loan is an unsecured loan, which doesn't need any collateral. Instead of collateral, your credit score and how much money you make are more important. Since the lender is taking on more risk, interest rates are usually higher. Still, the borrower takes less of a risk with them, and they are usually easier to get than a secured loan.
Loan term
The loan term is the amount of time you have agreed to pay back the loan. During this time, you will pay back the loan every month until the loan and interest are paid in full. Personal loans usually have loan terms of 1 to 10 years, while mortgage loans have loan terms of 15 to 25 years. The longer the loan term, the less you will have to pay each month, but the more interest you will have to pay over time.
