Credit is an essential component of a healthy economy. It fuels the construction of homes and businesses, helping build community. The borrowing and lending process is a complex and delicate balance, weighing the borrower’s need for capital against the lender’s concerns about the security of the investment. A solid understanding of the key components of the lending process can help you protect your interests as you weigh your options.
When you take out a bank loan, you have complete control over what you do with the money but paying back the loan also is your responsibility. You should know that failure to do so can result in the bank foreclosing on your business or property. Bank loans come with a wide variety of terms, fees, application requirements, and interest rates. These variables often differ from bank to bank and can be negotiated and adjusted. Further, the interest rates on loans may be either fixed – that is, the interest rate will remain the same for the duration of the loan, even if the market rate for interest rates changes – or variable, meaning that the interest rate can shift with the market. Keep in mind that interest rates can rise, making a loan unmanageable or very difficult to pay back. In some cases, other terms can change during the repayment period, making the success of your business subject to alterations in the bank’s demands.
You should know the laws and your rights before entering into a financial partnership with a creditor. It is imperative to the financial success of your business venture. With the right information and the right assistance, you can work with the bank to make a deal that benefits you.
The promissory note identifies the parties, the obligations, and the contingencies of the repayment agreement. For example, a promissory note will specify what constitutes a late payment, what constitutes default, and what remedies are available in the event of a default.
The mortgage or deed of trust identifies the borrowers and provides a legal description of the property, as well as the common street address. While the collateral for a loan may be real property, it may take other forms as well, including cars, jewelry, stocks, bonds, and cash.
When you take out a mortgage or other type of loan, your lender will charge a percentage of the loan as a fee for borrowing its money. How much interest you have to pay depends on the type of loan you take out and the sort of interest rate attached to the loan.
Failure to repay a loan may result in foreclosure, which means that the property that you borrowed money to acquire may be forfeited to the lender. Programs may be available for foreclosure relief, but borrowers should be aware of potential pitfalls, including fraud.
Last updated Nov. 20, 2018
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