In addition to interest, some lenders charge fees. It’s simple – if your loan has a ten-year term, for instance, you repay it over ten years (120 months). This is the period over which you have to repay the loan. Typically, the interest rate is tied to a published financial index and moves up and down as the index changes. In contrast to a fixed-rate loan, an adjustable-rate loan’s interest rate may change at specific times during the loan’s life according to formulas that are spelled out in loan documents. In this context “fixed” means that the interest rate stays the same throughout the life of the loan.Īdjustable interest rate. Interest is usually computed as a percentage of the amount you owe.įixed interest rate. This is what you pay lenders for tying up their money. When your principal balance hits zero, you’ve paid off your loan. It starts out as the amount you borrow and falls as you pay the low down. Most of the concepts are actually pretty simple if you look at them one by one. Don’t be intimidated - it’s not as complicated as it seems. There’s a lot of jargon associated with loans. This guide can help prepare you to borrow money successfully, and act as a reference any time you have questions about loans. This guide covers the essentials, including In order to borrow successfully, it’s important to understand how loans work. However, borrowing mistakes can make your life miserable for years to come. Borrowing money can help you achieve the lifestyle you want.
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