Loan Interest and Principal explained in under 2 minutes.
http://www.turnkey-lender.com – free cloud lending software.
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For any loan it’s important to understand that the debt is not a uniform, solid pile of money. Let’s see, what is the structure here.
The first and inherent part of it is the borrowed amount itself. In banking, we call it the ‘principal’. It’s important to know how much principal there is left at any point of the loan’s life cycle, because monthly financial charge often depends on this remaining principal.
The second part of the balance is interest. Interest is a basic financial charge for lending services. In theory, this is the most egalitarian way to arrange lender’s reward, because interest is perfectly aligned with the loan amount and term. The more you borrow, the more interest you pay, which is only fair. For example, a monthly interest rate of 5% translates into $5 dollars of monthly financial charge for every $100 dollars. Most commonly, interest is specified as a monthly or annually percentage. For short-term loans, interest can be also expressed in daily terms.
In real-life scenario, banks often charge some fees in addition to interest. Most common examples would be the origination fee and the account keeping fee. Origination fee is a one-off payment made upon the loan issue and the account keeping fee is a recurring fee charged every month.
No matter what fees or interest drive your business, Turnkey Lender’s flexible software can be easily configured to your needs. Apply for a free trial today at www.turnkey-lender.com
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Minute Explainers by Lending Boost is a monthly animated series about the basic concepts of lending industry.
