The financial literacy of the population is not very high, unfortunately. And, if the potential borrower is not a specially trained financier, understanding banking terms at first can be difficult. For example, if you want to take a loan from a bank or an instant loan from a microfinance organization, for example, a credit company, open a loan agreement, and there you will come across such concepts as a loan body, interest, commission, penalty, penalties, document costs, insurance payments.
A knowledgeable person understands what’s what, but to a simple layman who needs additional financing, it may not be clear what the loan body is, where it comes from and what other obligatory payments are made for a loan being issued.
What does a loan body mean?
So, what is included in the body of the loan in the loan program that you draw up at the bank or credit union? In fact, the body of the loan is that clear amount for which the loan agreement is drawn up, that is, if you take a microloan in the amount of 15 thousand dollars, then the body of such a quick loan is these 15 thousand dollars. This amount does not include interest on the loan, commissions, penalties and fines due to delay, expenses for paperwork on the loan, insurance. The body of the loan is a key parameter, according to which, in fact, all interest, commission, fines, penalty, insurance will be charged. Thus, we figured out how to calculate the body of the loan, and it turned out to be impossibly simple.
How does the size of the loan body change during the term of the loan agreement?
During the course of the credit program, the trustworthy borrower pays the loan body in installments and interest on it. How the size of the loan body changes over time depends, first of all, on the chosen form of payment. All over the world financial institutions offer two types of loan repayment schedule:
- Differentiated: the loan body becomes smaller with each next payment exactly as much as is paid by the borrower.
- Annuity, that is, equal parts. With this form of debt repayment, interest on the loan is initially paid, and already in the second half of the repayment period, the loan body begins to decrease.
When can I pay only the loan body without interest?
The borrower can pay only by loan if:
- There is an agreement on early repayment of the loan, which does not contradict the clauses of the loan agreement.
- Payment only of the loan body without interest can be made in the grace period allotted to the lender.
- The borrower who first applied to the MFI has the right to an interest-free loan, that is, in fact, it pays only the loan body. Turning to the credit company, you can take advantage of a special offer for those who first applied for a microloan, having received a loan without interest. And in the future, you will be able to take advantage of microcredits, according to which most of the payments will concern the body of the loan, and interest, commissions, document costs and insurance payments will be minimal.