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Credit Cards
Insurance
Investing
Loans
Mortgages
Mutual Funds
Real Estate
Reviews
Savings
Stocks
More...
What are Loans?
A loan can be defined as a sum of money borrowed from a bank or other
financial institution for the purpose of financing a transaction or the
purchase of goods or services. Loans can be either of a short, or a
long-term nature. A mortgage is a special instance of a long-term loan.
On this page we focus specifically on short-term loans.
In order to receive a loan the borrower typically needs to make a deposit
against the amount he or she wishes to borrow and agrees to make the
repayments over a certain period of time. Alternatively, the lending
institution may seek collateral to cover the amount being borrowed.
However, it is quite common nowadays to get a short-term loan with little
or no deposit, provided that the borrower meets certain criteria.
To estimate repayment periods for a loan, including a mortgage, use
our mortgage-calculator.
financial institution for the purpose of financing a transaction or the
purchase of goods or services. Loans can be either of a short, or a
long-term nature. A mortgage is a special instance of a long-term loan.
On this page we focus specifically on short-term loans.
In order to receive a loan the borrower typically needs to make a deposit
against the amount he or she wishes to borrow and agrees to make the
repayments over a certain period of time. Alternatively, the lending
institution may seek collateral to cover the amount being borrowed.
However, it is quite common nowadays to get a short-term loan with little
or no deposit, provided that the borrower meets certain criteria.
To estimate repayment periods for a loan, including a mortgage, use
our mortgage-calculator.
What to consider before contracting a Loan?
Loans are investments by lending institutions to make a profit. Profit is
made on a loan by cashing-in on its opportunity cost, or the alternative
use that the money could have been put to. Lenders charge an interest
rate to reflect that opportunity cost.
Where the lending environment is competitive most lenders will lend at
a rate near the market rate. What that means is whether you obtain your
loan from one bank or another you will be paying the same interest rate.
However, lenders have found ways to charge slightly (and occasionally
significantly) above the market lending rate by differentiating their loan
offers from the competition. The basis of such differentiation can be the
lender's name, location advantage, flexibility in repayments, products
and services covered by the lender, among others.
made on a loan by cashing-in on its opportunity cost, or the alternative
use that the money could have been put to. Lenders charge an interest
rate to reflect that opportunity cost.
Where the lending environment is competitive most lenders will lend at
a rate near the market rate. What that means is whether you obtain your
loan from one bank or another you will be paying the same interest rate.
However, lenders have found ways to charge slightly (and occasionally
significantly) above the market lending rate by differentiating their loan
offers from the competition. The basis of such differentiation can be the
lender's name, location advantage, flexibility in repayments, products
and services covered by the lender, among others.
Lender's name or brand for your loan
A lender with a distinctive name in the industry is likely to have some
advantages over a relatively unknown lender. Customers who have
known of a particular bank's existence for the last 100 years would
generally feel more comfortable doing business with them than a bank
that is less than 10 years old. However, that bank in turn knows it
commands some monopoly advantage based on loyalty and can charge
a slightly higher interest rate than another bank.
advantages over a relatively unknown lender. Customers who have
known of a particular bank's existence for the last 100 years would
generally feel more comfortable doing business with them than a bank
that is less than 10 years old. However, that bank in turn knows it
commands some monopoly advantage based on loyalty and can charge
a slightly higher interest rate than another bank.
Location of the lender or bank for your loan
The location chosen by a particular lender to conduct its business can be
to its advantage in the market. A bank located within a university
community is likely to have advantages in securing students and faculty
of that community as its customers over another back several miles
away. Consequently, that bank may be able to charge a slightly higher
interest rate on its loans and still enjoy a significant share of the market.
Customers may feel that it is simply not worth their time and effort to use
another back about fifty ,miles away where the interest rate may be
slightly lower.
to its advantage in the market. A bank located within a university
community is likely to have advantages in securing students and faculty
of that community as its customers over another back several miles
away. Consequently, that bank may be able to charge a slightly higher
interest rate on its loans and still enjoy a significant share of the market.
Customers may feel that it is simply not worth their time and effort to use
another back about fifty ,miles away where the interest rate may be
slightly lower.
Flexibility of loan payments by the lender or bank
Many banks prefer to enter into fixed terms of lending on the loans
issued with minimum flexibility to modify repayment options. However,
some banks have caught on to the idea that it may be worth their while
to be as flexible as possible with customers as a means of securing
their loyalty. Once the customer has become loyal to a particular bank
he or she is likely to use that bank for all future transactions, whether or
not the terms and conditions offered are as attractive as those being
offered by the competition. In addition, loyal customers become
excellent referrals for their banks, thus growing their customer base
without doing any direct advertising.
issued with minimum flexibility to modify repayment options. However,
some banks have caught on to the idea that it may be worth their while
to be as flexible as possible with customers as a means of securing
their loyalty. Once the customer has become loyal to a particular bank
he or she is likely to use that bank for all future transactions, whether or
not the terms and conditions offered are as attractive as those being
offered by the competition. In addition, loyal customers become
excellent referrals for their banks, thus growing their customer base
without doing any direct advertising.
Loans for specific products or services
Banks may also differentiate themselves from the competition by
specialization, i.e., by offering loans for specific types of products and
services. For instance, it is now common to find banks that provide
loans exclusively to finance autos, new mortgages, refinancing an
existing mortgage, luxury yachts, or short-term cash advances. By so
doing these banks become known as "experts" in the respective fields
and customers develop a preference for doing business with them
when the need for a particular type of loan arises.
specialization, i.e., by offering loans for specific types of products and
services. For instance, it is now common to find banks that provide
loans exclusively to finance autos, new mortgages, refinancing an
existing mortgage, luxury yachts, or short-term cash advances. By so
doing these banks become known as "experts" in the respective fields
and customers develop a preference for doing business with them
when the need for a particular type of loan arises.
Interest rates on short-term loans
Ultimately, when it comes to choosing a bank or other institution for a
short-term loan the big question should be the interest rate: how much
will I have to pay for the use of money today? You need to really reflect
upon this question before making a decision.
A bank may carry a big name or may be closest to your home or place
of work, or may be flexible with your repayments, but how much is the
loan costing you? Taking control of your personal finances implies
exercising maximum efficiency in the use of your money and where
loans are concerned it means securing the best possible interest rate.
short-term loan the big question should be the interest rate: how much
will I have to pay for the use of money today? You need to really reflect
upon this question before making a decision.
A bank may carry a big name or may be closest to your home or place
of work, or may be flexible with your repayments, but how much is the
loan costing you? Taking control of your personal finances implies
exercising maximum efficiency in the use of your money and where
loans are concerned it means securing the best possible interest rate.
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