Collateral – A valuable object, such as a home, is used as insurance to protect the lender if the borrower cannot repay the loan. Relying solely on a verbal promise is often a recipe for a person who gets the short end of the stick. When repayment terms are complex, a written agreement allows both parties to clearly specify the terms of payment in instalments and the exact amount of interest due. If a party does not fulfill its part of the agreement, this written agreement has the added benefit of having recalled the understanding that both parties have consequences. Interest calculated on a loan is regulated by the home state and is governed by the state`s laws on usury rates. The rate of usury of each state varies, so it is important to know the interest rate before calculating an interest rate to the borrower. In this example, our loan comes from New York State, which has a maximum wear rate of 16% that we will use. The most important feature of every loan is the amount of money that is borrowed, so the first thing you want to write on your document is the amount that may be in the first line. Follow by typing the name and address of the borrower and then the lender.
In this example, the borrower is in New York State and asks to borrow $10,000 from the lender. A lender can use a legal credit agreement to enforce the repayment if the borrower does not maintain the end of the agreement. Secured loan – For people with lower credit scores, usually less than 700. The term “secure” means that the borrower must deposit collateral such as a house or car if the loan is not repaid. Therefore, the lender is guaranteed to receive an asset from the borrower if it is repaid. A subsidized loan is for students who go to school, and its right to fame is that there is no interest while the student is in school. An unsubsidized loan is not based on financial need and can be used for both students and doctoral students. Repayment Plan – A breakdown detailing the principal and interest of the loan, loan payments, payment due date and loan term. A person or organization that practices predatory loans by calculating high interest rates (known as the “credit shark”). Each state has its own interest rates (called the “usury rate”) and usurers illegally calculate higher than the maximum allowable rate, although not all credit sharks practice illegally, but rather fraudulently calculate the highest interest rate, which is legal under the law.
. . .