Many of us turn to personal loans when facing financial difficulties. It is one of the most practical and efficient ways to take care of your immediate financial demands, including unanticipated wedding expenses, medical emergencies, and more. When you are applying for a personal loan, you must have come across many words that were hard to understand. When you are exploring different personal loan options on personal loan apps, having a proper knowledge of personal loan terminology is one thing you should have.
Understanding personal loan glossaries available on personal loan apps, however, might be challenging for a novice. When evaluating offers from several lenders, you can find yourself at a disadvantage if you are unfamiliar with the terminology. In order for borrowers to be able to select the lender, we have put up a list of the top personal loan terminology you should know before you apply for a Stashfin personal loan.
Annual Percentage Rate: The annual percentage rate (APR) of a personal loan is what the borrower must pay. In order to provide a complete view of the borrower’s annual cost of the loan, the APR on a Stashfin personal loan combines the loan’s interest rate and any fees into one number and is expressed as a percentage rate. If there are no expenses associated with a personal loan, then both the interest rate and APR are the same. Use the APR to compare two loans with varying interest rates and fees in order to determine which is most affordable.
Credit Rating: A three-digit figure that represents your credit history is your credit score. Lenders evaluate your creditworthiness or risk as a borrower based on your credit score in addition to other variables like your income. It may be difficult to be approved for a Stashfin personal loan or one with a low-interest rate if you have a poor credit score because it indicates that you pose more risk as a borrower. You may be eligible for the best rates and terms on a personal loan with the help of a good credit score.
Borrower: The individual requesting a loan is known as the borrower, sometimes known as the applicant. When you take out a personal loan either via personal loan apps, you are accountable for repaying it in accordance with the terms of the loan agreement you sign when you apply.
Cosigner: An individual who cosigns a loan with a borrower assumes legal responsibility for the loan’s repayment in the event the borrower is unable to make payments. If your income or credit score doesn’t make you eligible on your own, a lender might ask you to add a cosigner to your application. Getting a better interest rate is another benefit of adding a cosigner. Close relatives or friends of the borrower who have strong credit and a steady income frequently serve as cosigners.
Debt consolidation: It is the process of combining several debts into one loan with a single monthly payment, such as two or more credit cards. A loan is fundamentally a personal loan, even if lenders may call it a “debt consolidation loan.” You can manage your debt easier by combining several balances into a single loan. Additionally, a personal loan might have an APR that is lower than the APR on your credit cards, which can help you save money on interest.
Variable vs. Fixed Interest: Personal loans with a fixed interest rate have a constant interest rate: You will pay the same interest rate for the duration of the Stashfin personal loan as you do when you apply. This makes setting up a budget for monthly debt payments simple. A majority of personal loans have fixed interest rates. Another type of interest rate is a variable interest rate which fluctuates according to prevailing national interest rates.
Soft vs. Hard Inquiry: Hard and soft enquiries, often known as hard and soft credit checks, are used by lenders to assess your creditworthiness. When it comes to Stashfin personal loan, a soft inquiry is when a lender checks your credit report to prequalify you for a loan. It has no effect on your credit rating. In the event that you formally apply for a personal loan via personal loan apps or another credit product, the lender will run a hard inquiry to check your credit. Hard inquiries can lower your credit score for a few months and stay on your credit report for up to two years. This is a solid reason to only apply for a personal loan when you truly need one, even though it shouldn’t stop you from seeking credit in the first place.
Interest rate: Interest is the fee that a lender charges to a borrower in return for a loan. The interest rate on a personal loan is frequently given as a percentage. APR for a personal loan includes interest as well as any fees charged by the lender. You will continue to pay interest on the outstanding principal each month for the duration of the loan, and your payments will be used first to pay off any accrued interest and then to reduce your balance.
Prepayment Penalty: If you pay off your loan early, you will be charged a prepayment penalty or early payoff cost. Prepayment fees help lenders in recovering part of the interest they lose when you pay off your loan early. If you want to pay off a personal loan early, it’s a good idea to browse around for a loan without an early payoff fee since not all lenders impose them.
Prequalification: A lender’s prequalification is a sign that a borrower might be eligible for a loan. In order to prequalify you, a lender looks at your financial information, including your income and housing expenses, and performs a mild credit check to see if you are likely to be approved for a loan. Prequalification doesn’t ensure approval, but it’s a good start.
Principal: The amount you borrow from a lender is known as the principal. You make monthly principal payments over the course of a loan to lower your balance. Only a portion of payments, however, go toward reducing the debt because most loans also charge interest each month. You can reduce interest costs by reducing your principal faster.
Compared to an unsecured loan: A secured loan is one that is backed by collateral, allowing the lender to seize the asset in the event that the borrower defaults on the loan. For instance, you may need to use your house or vehicle as collateral for some loans. You don’t need to pledge an asset as collateral for most personal loans because they are unsecured.