Generally, there are two important things that must be considered when or before taking out a loan. These are:
1. the repayment term and
2. the interest rate.
Basically, the repayment term is defined as the amount of time that you are given to pay your loan back. The This part of the contract should also explain in what way you have to pay the loan. Most lenders allow you to pay the money you borrowed, plus the charges, in either installments or single lump sum. Before you sign up for a loan, make sure that you understand your lender’s terms and conditions to avoid extra charges. It is important to remember that even if you are able to provide the payment before your loan term ends, you still need to follow your lender’s repayment method.
The interest rate, on the other hand, is defined as the total cost of borrowing. It is normally added to the cost of the principal amount. The interest rate can either be fixed or variable, depending on the lender. A fixed interest rate remains the same while the variable interest rate may change at any time within the repayment term.
The relationship between these two factors is inversely perpendicular, wherein the longer the repayment term, the lower the interest rate per month. However, if you compute the total cost, the loans with the longer repayment term generally have a higher interest rate over the loans’ lives.
You must understand your loan contract, specifically these two factors, especially if you have bad credit. Better your credit score by understanding completely the most important aspects of the financial transaction that you are about to enter.