Loans – the general terms
Let’s have a look at the general terms of the area of loans and finances and we will try to introduce some general terms. The world of finance has a very specific and extensive glossary and it is not understandable for all. Let us try to look what is meant by APR, interest rate, creditworthiness , Credit Bureau or guarantor.
The APR is an abbreviation of the annual percentage rate that shows you how the loan is favorable for you. It includes all the costs that comprise for example the assessment of the loan, the arranging the loan agreement, the loan administration and even the insurance to repay the loan. It depends not only on the bank what fees you'll be charged, but also on the product. For you, it is especially important to have an overview of these fees and to familiarize yourself with the value of the APR. Generally speaking, the lower the APR, the more favorable the loan is for you.
Another term is an interest rate. The concept of interest rate is as old as money itself. Someone has more money, someone has less money and the person who has abundant money can borrow it to those who just need the money and, for that he provides these resources, he asks for a payment which in this case is called an interest rate.
Creditworthiness is generally described as an ability to repay the loan. While arranging the loan, financial companies usually verify your personal information and incomes and they usually look into Credit Bureau (a database of people who have ever had a problem with repaying their loans that enables to search the outstanding commitments of companies or individuals). Based on this information they assess your ability to repay the loan and the higher is this ability, the higher is your creditworthiness and you can reach more favorable interest rates. If your creditworthiness is low, you have to solve it in another way. One of the possibilities is guarantor. It is a person who will guarantee that if you are unable to repay the loan, he will assume the obligation for you.
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If we decide to take a loan we should follow some basic rules to avoid getting into unexpectable troubles. The main principles are summarized on this webpage.
Loans - the general terms