A single payment loan requires the borrower to repay the entire principal and the interest in one lump sum on the due date.
Single payment loans can come in several different forms. Many loans require the borrower to make several monthly payments until their loan is paid in full. However, single payment loans are paid back with one large payment by the due date decided by the lender. One common form of a single payment loan is called a payday loan.
Loans are a big part of today’s society and understanding them is one key to financial success. Loans are typically issued by financial institutions (such as banks), corporations and governments. There are many types of loans, so how can you know which one to pick?
There are several types of loans out there. The easiest way to break them down is by “secured” and “unsecured.” A secured loan is one that requires the borrower to offer up collateral in order to take out the loan. This way, if the customer defaults on the loan the lender can sell the collateral to cover their loss. An unsecured loan is the opposite, in that it required no collateral.
Before we talk more about borrowing money, we need to discuss a topic that is crucial to the whole process. Credit history is one of the crucial ways lenders and creditors assess how responsible you are with your financial obligations. The better your credit history and higher your credit score, the more likely you are to get approved for a loan with the most favorable interest rates. Before borrowing money, it’s important to know what it means to be fiscally responsible and to understand how credit scoring works.
To have a good grasp on the concept of borrowing, it’s important to understand the factors which define different loan types. We will clarify the most common ones:
There are a few key features every loan has: the principal, interest, and the term of the loan.
The principal is the total sum of money you’re looking to borrow. Interest is essentially the cost of borrowing money. Lenders earn money by collecting interest. The term of the loan is the total length of the loan, in months, that you’ve agreed to.
For example, if Mike wants to buy a new car but doesn’t have enough money for this purchase, he may go to a lender and apply for a loan. Let’s say he wants to borrow $10,000 for his new car. This is the principal. The lender offers him an interest rate, and a loan term, by which he has to pay off the debt.
If the interest rate is 5%, and the loan term is five years, Mike will have to pay \$10,500 in total by the time the loan term expires. He will do it in monthly payments across the loan term. If we want to calculate the monthly expense Mike has, we take the principal, add to it the amount of interest he owes to the lender, and divide it by the number of months of the loan term. Since the total sum Mike has to pay is $10,500 including interest, if we divide it by the number of months (5 years = 60 months) we will get a monthly rate of $175.
A secured loan is a loan in which the borrower has to pledge an asset as collateral. That asset is used only if you’re unable to pay back the loan, which is called defaulting on a loan. In case the borrower defaults on their loan, the lender has the legal right to repossess the asset given as collateral.
Since most people do not have the financial assets to buy a house by themselves, they turn to lenders for help. A mortgage is a secured loan with real-estate as collateral. Another typical example of a secured loan is a car loan. If Mike can’t pay his $175 per month as compensation for his loan, the lender might seize his new car. That’s why making your loan payments is important.
Unsecured loans often come in the form of credit cards, lines of credit, and personal loans. They do not require collateral like secured loans. When borrowers miss their payments multiple times, this may have consequences, such as increased interest rates, and decreased credit score. To avoid this, be sure to pay your credit card regularly. Because of the higher risk lenders have to take with unsecured loans, the interest rates are usually higher compared to secured loans.
The name says it all — single-payment loan requires no partial payments. A single-payment loan can act as a cash advance loan at times and help you with unexpected financial needs, such as car problems, medical emergencies and similar. Single-payment loans are provided on the condition that the borrower can pay the full amount on the loan’s due date. If you need money and know that you will receive pay soon, you may take out a single-payment loan.
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