Financially speaking, a loan is a form of debt characterized by an amount, rate and payment date. Basically a loan can be seen as money renting. Most loans require the borrower to pay a monthly sum back. Loans have evolved a great deal in the last years, since more and more people with different needs take them. As a result there are many different types of loans out there. The most common types of loans are:
This type of loans is characterized by some form of collateral asset that the lender will receive if the borrower fails to pay the loan back. The most common asset that is pledged is property (apartments, houses) or cars. The most common example of this type of loan is a mortgage loan. This is used to buy real estate properties using the money borrowed. In this case, the apartment or house belongs to the lender until the borrower pays the money back. If he fails to at any given point, the property will go the lender and he will also keep the money he got until then. When a car is the object of a loan, is called and auto loan. This type of loan is considerably shorter, and just like a mortgage, the car is used as a collateral asset. The duration of it is usually the same duration a car is expected to be useful. Depending on whether there is a dealership acting as a middle man between the bank and the buyer, auto loans split up in 2 main types of loans: direct or indirect.
This type of loans does not have any security based on the borrower’s assets. Because the risk is greater for lenders, interest rates are much higher because the lender does not have any protection. This increased cost is supposed to cover the much higher risk the lender is taking in case you fail to pay the loan back. If this happens, the lender must go to court and sue the borrower and then get his money back. This is why his type of loan is very expensive.
This type of loan is characterized by very generous conditions, well above the market. This is done either by a very low interest rate, or by allowing a period in which the borrower does not have to pay, or a mix of these 2 methods. This type of loan is very rare and is mostly seen as a benefit for employees working in a loan company, or as a help offered to poor countries.
This is a type of loan in which the interest rate is diminished by a given “subsidy”. For example, the loan may not have any interest rate while the borrower is a student. This is very common, especially in the US and other modern countries. In the UK for example, students can get a free loan and after they get a job, or finish their degree, have to pay it back.
This type of loan is the shortest loan when it comes to its duration and does not carry a fixed payment date. As far as its type goes, it can be both secured and unsecured.
Of course there are many more types of loans out there, but these are the most common. The variety of them is a direct result of our different needs.
Borrowing money to purchase a new car can be estimated using a car loan calculation. It is important to estimate the monthly payments that you will ultimately be responsible for when paying back the car loan.
There are three basic factors to think about when shopping for a new loan and are used in the car loan calculation: interest rate, loan principal and loan period. Knowing these three items will enable you to understand how much loan you are able to obtain. Using these to make your loan calculation will help you establish your budget for making the monthly payments.
Finding out the answers to these three questions is as simple as asking your loan officer or going online. Most online lenders have a simple car loan calculator you can access from their web site that will help you determine how much loan you can afford. You can also call lenders and ask them what their lending rates are based on how much you are borrowing and how long you will take out the loan.
Remember that most lenders will want you take out as much loan as you can possibly afford since they will make more money the larger the loan is that you receive. These car loan calculations can give you an estimate of the total costs which you can use to compare against your total income. This will help you determine how much loan you can afford.
To understand the loan process fully, you need to learn and understand what the loan terms refer to. This will help keep your budget on track as you are calculating your loan.
Car Loan Calculation: The Loan Principal
In car loan calculation, the loan principal is the amount of money you originally borrowed. Loan principal is a term used in finance that refers to the original amount of the dept or the original amount of money borrowed. Your total interest charges at the end of the loan period depend on the amount of the loan principal and the loan period. The more principal you borrow the more money you will ultimately be paying back over the course of the loan.
In some cases, the loan principal is used to refer to the amount of money left or still owed after the debt has been partially paid. In this case, the loan principal is sometimes referred to as the remaining loan principal or outstanding balance. With each monthly payment, you slowly but steadily chip away at the total loan principal until the balance is paid off.
In car loan calculation, it is important to know that a good percentage of your monthly payments in the first few months are used to cover the interest costs. Only a small percentage is used to pay off the loan principle. This is most commonly seen in amortization loans. As the loan matures more of your payments will go towards paying down the principal and less to pay the interest of the loan. This process continues until the remaining principal balance is paid off.
Car Loan Calculation: Interest Rate
The interest rate is usually expressed in percentage and is referred to as the amount of money charged outside the loan principal amount. The lower the interest rate the lower your monthly payments.
Car Loan Calculation: Loan Period
The loan period refers to the life cycle of the loan, the length of time the borrower agreed to pay back the lender. The longer the loan the more expensive the loan will be.
Car loan calculation is an important part of purchasing a car loan. You can determine how much your loan is going to cost you by utilizing good car loan calculation.