A personal loan can be a great way to get the cash you need to cover unexpected expenses or consolidate your debt. But before you take out a loan, it's important to understand the terminology involved. This glossary of personal loan terms will help you do just that.
So whether you're a first-time borrower or just trying to learn more about personal loans, read on for definitions of some of a couple of common terms associated with this type of financing.
Annual Percentage Rate (APR)
The annual percentage rate, or APR, is the cost of borrowing money for one year, expressed as a percentage. For example, if you take out a personal loan for $10,000 at an APR of 10%, you will owe $11,000 at the end of the year. The APR includes the interest rate and any fees due at closing, such as origination or prepayment penalties.
APR is different from the interest rate because it is a more accurate measure of the true cost of borrowing money. The interest rate only reflects the amount charged on the loan. However, the APR includes other fees that may be due at closing, such as origination or prepayment penalties.
When considering a personal loan, it is important to compare APRs rather than interest rates. By comparing APRs, you can get a more accurate picture of the true cost of borrowing money. Before you take out a personal loan, ask about the APR so that you can make an informed decision and avoid any nasty surprises down the line.
A credit report is a statement that summarizes an individual's credit history. The report includes information such as your payment history, outstanding debt, and credit utilization. Lenders use this report to determine whether you're likely to repay a loan on time.
By law, all consumers are entitled to one free credit report per year from each of the three major credit reporting agencies. These agencies are Experian, Equifax, and TransUnion. You can request additional reports if you suspect inaccurate information on your report.
You should check your credit reports regularly to ensure accuracy and identify fraudulent activity. If there are errors on a credit report, you can file a dispute with the credit bureau to have the information corrected.
Pro-tip: If you're planning to apply for a personal loan, it's a good idea to check your credit report beforehand. This way, you can identify potential red flags that could prevent you from qualifying for a loan.
For more help with your loans and financing, contact a personal loan agency in your area such as Time Finance Inc.