Frequently Asked Questions
1. What is a Loan?
2. What is a Lien?
3. Interest and Interest Rate
4. What is APR?
5. Bad Credit Loans
A lien is a legal claim or a "hold" on some type of property, whether personal or real property, making it collateral against monies or services owed to another person or entity. A lien is a type of security interest granted over a unit of property to secure the payment of a credit or other forms of obligation. The owner of the property, who provides a lien, is called a lienor and the person who has the benefit of the lien is called a lienee. A lien usually appears in situations like loans against a vehicle title, second mortgages or money loaned against any other substantial item owned by a borrower.
A lien is placed against the value of the asset in case you buy a car or truck for your business. A lien is discharged when it is paid off. In most cases, you have the use of the property while it is being paid off, but in some cases, the creditor or lender actually holds the property. If the asset is sold, the lien must be paid off. In the example of the car or truck, the lender will not release the title until the lien is paid in full.
In the U.S., a lien refers to a non-possessory security interests. In other common law countries, the term lien refers to a very specific type of security interest, being a passive right to retain property until the debt or other obligation is discharged. In spite of the differences in the terminology and application, there are a number of similarities between liens in the U.S. and elsewhere in the common law world.
A title search will commonly show whether a lien exists and whether the seller is the legal property owner as well as it will display the exact legal description of the property, providing details regarding a lien or other encumbrances against the title. This is especially important for you not to be cheated. Otherwise, once you have paid the agreed upon price, you may discover that you still do not own the property free and clear.
Interest is an amount a financial institution charges clients to lend money. If you borrow money from the bank (in the form of a credit card or personal loan), you will be charged a certain amount of money on top of the amount you owe. In this situation, interest is the price you pay for being able to borrow the bank's money. Whether you borrowing money for a new auto loan, refinancing your existing loan, or for debt consolidation there is always going to be an interest rate involved. Interest is therefore the price of credit, not the price of money as it is commonly believed to be.
The best way to clarify details about the interest rate is to imagine a certain percentage of the money borrowed to be paid. Interest can be thought of as "rent of money". The interest is calculated upon the value of the assets in the same manner as upon money. Interest is compensation to the lender for forgoing other useful investments that could have been made with the loaned asset. These forgone investments are known as the opportunity cost. The percentage of the principal that is paid as an interest over some time, is called the interest rate.
Annual Percentage Rate (APR) is the annual rate that is paid for borrowing, presented as a single percentage amount that showss the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction. APR is a way to compare the costs of a loan. A standardized calculation like the APR provides borrowers with a bottom-line number they can easily compare to rates charged by other potential lenders. APR lets customers to evaluate the cost of the loan in terms of percentage. Although it's not perfect, it gives you a nice standard for comparing the percentage costs on different loans. If your loan has a 10% rate, you'll pay $10 per $100 you borrow annually. All other things being equal, you simply want the loan with the lowest APR.
By law, lending companies and credit card providers must show customers the APR to facilitate a clear understanding of the actual rates applicable to their agreements. You need to look at each and every charge and expense related to your prospective loan in order to judge whether or not you're getting a good deal. You can't simply rely on an APR quote to evaluate a loan. In addition, look at the bigger picture - you need to know how long you'll be using a loan to make the best decision. All lenders have to tell you what their APR is before you sign an agreement. It will vary from lender to lender. Generally, the lower the APR the better the deal for you, so if you are thinking about borrowing, shop around.
The APR includes important factors such as: how you repay the loan (the length of the loan agreement (or term), amount of each payment and frequency and timing of instalment payments), the interest rate you must pay, premiums for payment protection insurance that the lender chooses to make compulsory, certain fees associated with the loan.
The terms APR, nominal APR, and effective APR (EAR) can seem confusing, especially due to multiple definitions of each term. The terms annual percentage rate (APR), nominal APR, and effective APR (EAR) describe the interest rate for a whole year as applied on a loan or credit card. It is a finance charge expressed as an annual rate. The nominal APR is computated as the rate for a payment period, multiplied by the number of payment periods in a year. However, the exact legal definition of "effective APR" (EAR) can vary greatly in each jurisdiction, depending on the type of fees included, such as loan origination fees, participation fees, late fees, monthly service charges.