Home | Business | LEARN HOW LOANS WORK BEFORE YOU BORROW

LEARN HOW LOANS WORK BEFORE YOU BORROW

Font size: Decrease font Enlarge font

MABANE -When you borrow money, it is important to know how loans work. With a better understanding of loans, you can save money and make better decisions about debt, including when to avoid it.


Learn how loans work before you start borrowing.

The Cost of Money


What does it take to get money? More money. When you borrow, you have to pay back the amount you borrowed, plus interest. You may also have to pay fees.
Considering acquiring a loan is a big step, as you are required to pay it back with interest as stated by Bongani Mdluli of Finvest Business Consultancy in Manzini.


“Costs are a key part of understanding how loans work and which one to choose, in general, it is best to minimise costs, but costs are not always easy to understand. Lenders do not often show exactly how loans work and what they cost, so it pays to run the numbers yourself,” said Mdluli.


For most loans, knowing calculations involved illustrate how things work. If you really want to play with the numbers, use a spreadsheet to see what happens when you change the variables. Costs can be tricky, so be sure to consider interest rates and transaction fees as you study how a loan works.

Paying Down the Loan Balance


It is only a loan if you repay it. As you figure out how loans work, you’ll see that most loans get paid off gradually over time. Each monthly payment is split into two parts: a portion of it repays the loan balance, and a portion of it is your interest cost. An amortissation table shows how this works, and how interest costs go down over time.


A loan may or may not have a term, a length of time over which you repay it.
Some mortgages last for 30 years, while other loans may only last three years. Credit cards are ‘revolving’ loans, meaning you can borrow and repay as many times as you want without applying for a new loan. The term affects how your loan works; shorter terms require larger payments.

Qualifying for a Loan
To get a loan you will have to qualify.
Lenders only make loans when they think they will be repaid. Your credit is important in helping you qualify since it shows how you have used loans in the past. Good credit means you are more likely to get a loan at a reasonable rate. You may also need to show that you have enough income to repay the loan.
If you do not have strong credit or if you are borrowing a lot of money, you may also have to secure the loan with collateral.
This allows the lender to take something and sell it if you are unable to repay the loan.
You might even have to have somebody with good credit co-sign the loan, which means they will promise to repay it if you can’t. Sometimes a well-written letter can help.

Comments (0 posted):

Post your comment comment

Please enter the code you see in the image: