When you apply for a loan, you should know some terms. This will help you avoid unexpected fees. It will also help you make a smart choice about how borrowing money affects your finances.
Educating yourself on common loan terms will help you fully understand how your loan works and how you will repay it.
5 Basic Loan Terms and What They Mean
These terms are in almost every loan agreement. Knowing them will help you understand the borrowing process better.
1. Principal
The principal is the original amount of money you borrow. So if you take out a $1000 personal loan, that is your principal.
2. Interest Rate
This shows how much interest they charge on your principal. You will have either a fixed interest rate or a variable interest rate. A fixed rate stays the same for your loan. A variable rate can change over time.
3. APR (Annual Percentage Rate)
The APR gives you the complete picture of your loan, including the interest rate and any fees. The APR also gives you a better idea of your total borrowing cost for one year. This is true even if your loan is for less or more than one year.
4. Loan Term
Your loan term is how long you have to repay the loan, like 12 or 24 months. This affects your monthly payment and how much interest you’ll pay over the lifetime of the loan.
5. Monthly Payment
This is the amount you owe each month to pay your loan back on time, comprised of both principal and interest. Balance Credit offers fixed monthly payments, so you pay the same amount every month.
Other Helpful Terms to Understand
Here are some other financial terms that might pop up when discussing personal loans:
Credit Score:
Balance Credit is unlike other loan providers in that we do not consider your credit score. Your credit score is a number that represents your credit history and how likely you are to repay any money you borrow.
Secured vs. Unsecured Loans:
Secured loans are backed by collateral, such as a car or home, which the lender can claim if the loan isn’t repaid. Unsecured loans, like those from Balance Credit, do not need collateral.
Default:
Defaulting on a loan is when you fail to repay it as agreed. This can lead to late fees, collections, and serious damage to your credit score.
Loan Agreement:
This official contract outlines your loan’s terms and conditions. It clearly outlines what both the lender and the borrower should expect.
Benefits of Knowing Personal Loan Terminology
Protecting your financial future is important. Understanding basic loan terminology isn’t just about knowing definitions. Knowing what all these personal loan terms mean can help you:
- Compare options confidently and accurately
- Avoid hidden fees and unexpected repayment terms
- Make smart decisions about how much to borrow and for how long
- Protect your credit by understanding repayment expectations
- Avoid default or collections by knowing the risks and requirements
Dangers of Misunderstanding Loan Terms
Borrowing money without understanding all the personal loan terms can lead to poor choices that may cost you later.
- Surprise Costs: Misjudging fees or the actual cost of the loan
- Budget Strain: Overestimating what you can afford to repay monthly
- Credit Damage: Missed payments due to confusion about due dates or amounts
- Default Risk: Unfamiliarity with the consequences of late or missed payments
- Lost Savings Opportunities: Not realizing you could save money by paying early, if there’s no prepayment penalty
Borrow Smarter With Balance Credit
At Balance Credit, we make it easier to borrow with confidence.
- Fast and straightforward online application
- Transparent terms with no hidden fees
- Fixed monthly payments for predictable budgeting
- Friendly and helpful support when you need it most
We’re here to help you understand your options and make borrowing as stress-free as possible. Whether it’s your first or fifth loan, knowing these loan terms enables you to borrow wisely and avoid surprises. We’re here to answer any of your questions about your loan.
If you need emergency cash or are struggling to get a loan due to bad credit, apply online with Balance Credit today and experience simple, secure, and straightforward lending.
