In today’s post we explain bank loans : their definition and more basic concepts. In addition, we bring it to you in a new format: on our blog video.
What is a loan ?: definition and key concepts.
Loans are a contract through which one person, the lender, lends money to another, the borrower, in exchange for interest, that is, money that is paid in addition to the money borrowed.
What is the repayment of a loan?
In a loan when we talk about repaying , we talk about repayment . Amortization is the return of the money borrowed. This borrowed money is called capital . The additional money that is paid is called interest .
How are loans calculated?
A loan can be repaid either through a single repayment at the end of the loan period or through installments .
In the case of the single refund at the end of the period, which will be the one stipulated in each contract, the money borrowed plus interest is returned.
If the reimbursement is made through installments the formulas may be different, and it depends on what has been agreed in the contract. Sometimes capital is repaid in different installments and interest is paid at the end. You can also repay the principal and interest on each installment, paying equal or variable fees.
By definition, the most normal is to return the same amount each month. We call this constant amortization fee. The amortization (return) is the same (constant) every month.
This fee is usually calculated by taking part of the borrowed amount (capital) and part of interest.
Personal Loan Simulator
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How to get your loan authorized?
Now that you have a clear definition and basic concepts of loans, don’t miss our post where we explain some basic tips to get your loan approved: 4 tips to get your personal loan approved.