It can be a jungle when you enter the loan market. No matter what you need a loan for. Not only are there many different providers, but there are also many different concepts that are completely new and unfamiliar to many.
You've probably heard words like principal, interest-only, installment, installment payment, standing loan, annuity and serial loan. Here we try to give a brief introduction to the different terms that are good to know and the different types of loans before you enter the loan market, whether it's personal or business
When you enter how much you want to borrow, this is your principal. The principal is the amount you will be paid out.
Installment is the term used for what you pay in, which offsets your principal.
The price of the loan
Typically, these are loan companies' interest rates. At Qred, we do not have an interest rate but an individually calculated monthly fee.
When the price of the loan is added to the installment, the term payment is found. How often a mortgage payment falls can vary from loan agreement to loan agreement, it can be annually, semi-annually, quarterly or monthly.
Interest-only loan means that you do not pay off the loan, but only pay the price of the loan for the applicable period. A grace period can be a good idea, it can give you some breathing space in a tight period. Just keep in mind that a loan will never be cheaper with a one-month grace period.
It is the composition of the mortgage payment that is important to understand, and this is more or less where the big difference between different loans lies.
With a standing loan, you have a fixed term of the loan, let's say it's 4 years, and at each term you will only pay the price of the loan, i.e. the monthly fee or interest rate. You will then pay back the entire loan at the last payment date together with one month's interest or fee.
The loan is good if you have a large investment and will only get the money back after some time.
With a bullet loan, you should be prepared to pay a large sum towards the end of the term, as the entire loan must be repaid in one go.
Typically, it will be possible to get a lower interest rate with this loan as you are tied in. It can also be more difficult to take on new debt while you have your standing loan, should your financial situation change
An annuity loan is typically the loan most people encounter when buying a car or house.
The loan is characterized by the fact that you pay the same amount in all installments during the term of the loan. In other words, there is a fixed payment. What changes during the term of the loan is the distribution of the payment between interest and repayments. Initially, you will primarily pay interest, and as you pay off the loan, the payment will tend to be more installments than interest.
At the beginning of the loan term, you will feel that your mortgage payment is not as high, as the interest you pay will be deductible on your tax return. But you should remember that as it decreases over the term of the loan, you won't financially feel like your debt is getting smaller. As the payment will be more installments and less interest. It is an advantage that you know every month how much you have to pay and this does not change.
With a serial loan, you will notice an increase in your disposable income over the term of the loan.
This is because the loan's term payment is made up of a fixed installment and an interest rate. The fixed installment means that every month you know what you pay off on the loan, and the interest rate on the loan is then added, but since they pay a fixed amount on the loan, after a relatively few months you will notice how the amount you pay will decrease. As the interest rate is calculated each month based on the open principal.
So, the serial loan differs from the annuity loan in that your payment will decrease as you approach the end of the loan.
Read our advice before you dive into the loan market
Going to the loan market?
Then consider a Business Loan from Qred, if we do say so ourselves, we've taken the best of the different loans and put it all together in our...
Here you get a fixed price every month for the entire term of the loan. At the same time, you are not tied to anything, so you can choose to pay off the entire loan each month and only pay monthly fees for the months you borrow the money.
/The team at Qred