Loan Terms Example.A loan , in economic terms, is a contract between two parties by which the advance of an amount of money is agreed and its future return in certain terms.
Loan Terms Example You Must Know
- Lien:
According to Section 171 of Contract Act 1872, lien means the legal or equitable right of lender (Bank) on the borrower’s property, which has been kept as security against a certain loan. The lender has this right until the loan is paid back. An ordinary creditor cannot sell the security under lien to recover his amount. But a banker lien is different from an ordinary lien. Banker’s lien is an implied pledge and so the banker can sell the security to recover his amount after giving a notice to the borrower.
- Pledge:
According to Section 172 of Contract Act 1872, pledge is an actual delivery of rights (documents) as well as the possession of the goods/property to the bank against certain loan. The ownership of the property remains with the pledger (customer). In case of non-payment the banker serves a notice for the fact and afterwards can sell the goods.
- Hypothecation:
In case of hypothecation goods are made available as security for the debts without transferring them to the lender (Bank). It means the possession and ownership of goods remain with the borrower. In case of non-payment the bank approaches the court of law to receive full rights of selling the hypothecated property.
- Mortgage:
Mortgage is a written agreement between borrower (mortgager) and the lender (mortgagee) for obtaining loan against immovable property. In this type of security borrower (mortgager) provides assurance to the creditor (bank) of legal right in property as security for the discharge of debts. In case of mortgage, legal rights (Documents) are transferred to the bank and the property remains in the possession of the borrower.
Loan Terms Example.Following terms are used frequently at the time of advancing loans.
- Principal: The original amount of money borrowed.
- Interest rate: The percentage of the principal that the lender charges as interest over the life of the loan.
- Term: The length of time in which the borrower must repay the loan, often expressed in months or years.
- Payment frequency: The frequency at which the borrower is required to make payments, such as monthly, quarterly, or annually.
- Amortization: The process of paying off the loan over time through regular payments that cover both the principal and interest.
- Collateral: Property or assets pledged by the borrower as security for the loan, which the lender can seize if the borrower defaults.
- Prepayment penalty: A fee charged by the lender if the borrower pays off the loan early.
- Late payment fee: A fee charged by the lender if the borrower misses a payment or pays late.
- Credit score: A numerical representation of the borrower’s creditworthiness, which affects the interest rate and other terms of the loan.
- Co-signer: A person who agrees to assume responsibility for the loan if the borrower is unable to repay it.