Deciding to take out a loan or finance a major purchase should not be taken lightly. While borrowing money is a part of our modern economy, you must understand just what you are getting yourself into. Most loan documents are filled with “legalese,” which can make the process even more confusing. To help you make an informed decision, the Resolvly team has compiled a list of some need-to-know financial terms.
The principal amount refers to how much you are borrowing from the lender. While this will reflect how much you are paying for a house or vehicle, it is not the total amount that you will be responsible for. Your payments will include interest charges and additional fees. Every time you make a payment, your balance owed will decrease, but not by the exact amount that you paid.
Fixed Interest Rate
The interest rate reflects the amount of interest that your borrowed funds accrue during each payment cycle. If your loan has a fixed interest rate, this rate will not change for the life of your loan. For example, if you receive a 4% fixed interest rate on your auto loan, it will never increase for the loan’s life. On the other hand, adjustable interest rates will fluctuate, resulting in substantial payment increases in worst-case scenarios.
The loan term is the agreed-upon length of time that you have to repay your loan. A typical loan term for a home is 30 years, while a vehicle loan will usually range from 36 to 84 months.
Vehicle loans fluctuate in intervals of 12 months, but some lenders may offer more varied loan terms. While the longer loan terms can result in a smaller monthly payment, the total amount paid in interest will be higher.
Personal and student loan term lengths vary. As with other types of loans, the longer you spread out the payments, the cheaper each payment will be. However, the total interest paid will be more considerable for longer-term lengths.
Hard Credit Inquiry
When you apply for a loan, the creditor will conduct what is known as a hard credit inquiry. This check will have a minor negative effect on your credit score and show up during future inquiries. It will not have long-lasting effects on your score as long as you do not have hard inquiries conducted frequently.
Whenever you have a credit inquiry conducted, the lender will let you know your current credit score. Your credit score is a number that is used to determine your creditworthiness and how likely you are to default on loan. Credit scores range from 300 to 850. The higher your score is, the better. Lenders will receive your credit score from three credit reporting agencies: Equifax, TransUnion, and Experian.
Make sure that you have the information you need before borrowing money. Having trustworthy information and resources can make a world of difference when you want to make sound financial decisions. If you already have financial obligations, the experienced team at Resolvly can help you manage your debt and achieve financial freedom.
What is Resolvly?
Resolvly is a Florida Bar-approved lawyer referral service that helps clients nationwide connect with consumer protection attorneys specializing in debt resolution. The Boca Raton-based company was founded in 2015 and has helped thousands of Americans find the right legal-based solution to reduce or dismiss their unsecured debt. Resolvly works with a network of attorneys that will protect and enforce their clients’ legal rights.