Key terms you need to know before applying for a loan

It turns out that you have an emergency and you need a loan. You arrive at the bank and you are attended by a very kind manager who begins to release concepts and technical terms such as “interest rates”, “terms”, “level installments”, “guarantor” or “guarantees” that you cannot fully understand. Here are two risks: that you end up declining the benefit or that you sign a contract without understanding it 100%.

That’s why here we share key terms that you need to know before applying for a loan.


1. Interest rate

Interest rate

It is the money you will pay to the banking institution for lending you a larger amount. In other words, what the lender charges the borrowers. For one of the parties it is the profit to be lent and for the other it is the payment for receiving the loan.

Interest is measured in percentage and for a period of time. For example “10% per month” means that you will pay one tenth of what you owe for each month that you have the money in your possession.


2. Level fees or balance fees

These are the two modalities to make the payments you have when you apply for a loan. When we refer to a level installment, we talk about paying exactly the same amount in every month of the loan term. That is, if the loan, with everything and the calculation of interest, is 1,000 and the payment term is for 10 months, 100 will be paid monthly.

On the other hand when talking about a balance fee, we talk about two terms:

  • Unpaid balance is the original amount of capital on which interest is calculated.
  • Interest rate is multiplied by the outstanding balance, which returns the value of the fee to be paid.

This way each installment is calculated depending on the type of loans requested.


3. Term

credit loan

It is the time that the lender establishes for the debt to be canceled. In case that at the end of the time, the debtor has not completed his payment, a fine or sanction previously established between both parties or to be established before a court may be made.


4. Surety or joint debtor

Before the law, he has the same obligations as the debtor if he does not comply with the established payments. The lender can demand partial or total payment from the guarantor who granted his signature to the debtor in a framework of solidarity and trust.


5. Warranty

credit loan

It is a good or certain amount of money that remains in the custody of the lender during the time of the debt and is returned in full when the deal ends. In case the loan is not repaid, you can have the guarantee in the terms dictated by the law.

And it is no longer enough to read the contract or the small letters. Now it is essential to understand it in its entirety to be able to sign with full knowledge of the benefits and consequences in case of not complying.