What Are Late Charges and Usury Rates

When goods or services are being purchased through a loan or bdo credit cards, the borrower or debtor needs to understand that the purchase involves the use of someone else’s money other than the buyer’s money.

In these cases, the lender may impose usury charges and late charge fees to the borrower to cover the cost of using the money which the lender may earn through a different mode of investment. There may be cases where an online loan or credit may involve other fees but we will try to focus on these two charges which are the most common charges that are charged on borrowing money.

  • Usury RatesRelated image – these are rates that are charged on loans. They are also referred to as interest rates. These rates are earnings received by the lender as a form of payment on the use of the money that is being extended to the borrower. The concept of charging usury rates is that a lender can invest the money in some other mode of investment rather than lending it. But the fact that a lender has provided a borrower to use the money, usury rates are applied to the borrowed money that will cover the amount that a lender could have earned if the money were placed under investments. These usury rates are usually unreasonably high unless a law has been passed to control these rates.
  • Late ChargesImage result for loan Late Charges – these charges on the other hand are penalties applied by a lender when a debtor makes payments beyond the agreed due date. When a debtor makes late payments to a personal loan philippines or credit, the lending company‘s cost of granting a salary loan may become unreasonably high. To cover the costs that are being incurred by the lender for buyer’s default, the lender reverts to applying late charges to fees that are due. It is possible that other penalties may be applied for multiple default payments such as the entire loan becoming due.

These charges imposed by a lender to a borrower ensures that any cost incurred by the lender is covered. It is a form of payment that a lender imposes on a borrower to ensure that the lender is earning from the use of their money.

What are Open Account Terms?

Open account terms are types of debt where there is no fixed payment that is required for a fixed term. It is a type of debt where a credit line is provided to a debtor who will make use of it through multiple transactions which generally would create more credit to the buyer as the outstanding balance is paid.

A good example of an open account is a credit card or a home equity line of credit. In both types of debt, the credit holder is allowed to make multiple transactions charged to the credit line at a certain credit limit. Payment is done that varies every period but usually supported by a minimum amount due on a recurring basis.

When an Open Account term is offered to a debtor, Screening and proper review of the debtor’s risk profile is very critical. This is to ensure that credit line offered to the debtor will be sufficient that will allow him to pay for the credit used. Two actions must be present to ensure that a creditor is providing proper credit to a debtor.Image result for loan internal control

  • Internal Control – internal controls must be in process to ensure that any application for a credit line goes through an effective process to check and control risk. Proper internal controls will greatly help risk management. Without policies and procedures to be followed on granting credit, this may prove to cause approval of high risk clients. This may bring in losses due to unpaid loans.

  • Extend of InvestigationImage result for loan Extend of Investigation the investigations that are conducted needs to be enough to learn about the client but not too much that would cause the process of reviewing and approving credit to be time consuming which may affect and limit a licensed money lender’s capacity to approve personal loan singapore. The time and expenses directly linked to a credit investigation will also contribute to the costs of approving credit to a debtor.

Open account terms may prove to be beneficial to a debtor as it provides flexibility of doing repeated multiple transactions without having the worry of exhausting the money. As long as the debtor continues to clear a portion of the credit line, there will always be room for a purchase of goods or services.

What Are Common Payment Term Options for a Loan

A credit being provided by a seller to a buyer is commonly being practiced by businesses. A credit offered by a business are number of days that the seller gives the buyer as an allowance to pay the goods being purchased.

These goods that are being sold are allowed for transfer to the buyer’s hands despite of payment to be received by the seller coming in on a future date. To discuss this, we will need to understand the types of payment terms of payday loans as this encompasses the relationship that exists between the buyer and the seller.

Common payment terms that seller allow are as follows:

  • Cash – Image result for loan payment termscash terms are often used by the seller if the relationship between buyer and seller is new. This restricts the buyer from getting the goods on hand prior to seller receiving the payment for the goods. This protects the seller losing products that are left unpaid especially in cases where seller is unaware of the buyer’s capacity to pay.
  • Net Credit Period – This is the next most common type of payment term option that companies and small businesses offer. These net credit period are specific periods that a seller is granting a buyer. It allows the buyer enough time to either prepare the sum of money for payment or make sure that the quality of the goods live to its claim.
  • Recurring Period –recurring period terms are most commonly associated with subscription payment or payment for goods that is under installment basis. This type of payments is often identified at a certain day of the month where the payments will occur. An example is payment of your utility bills that can occur during the 10th of every month during the subscription. It can also be done beyond a monthly period which can be quarterly, semi-annual or annually.Image result for loan payment terms Recurring Period
  • End of Month Term – this type of payment term can be referred to and be related to the recurring period term though not completely identical. If the payment is recurring, it can occur every end of the month during the subscription or credit period. But for cases where there is only a one-time payment, this type of payment may be specific to be completed by the buyer on or before the end of the month arrives.

What Are Mortgages?

Mortgage loans are loans made by borrowers to purchase real properties. This type of loan allows lender to put a lien on the property being purchased. With this concept, a mortgage is a secured type of loan against the borrower’s real property that has been purchased. The lender is then given the authority to demand claim over the property and sell it to pay off the loan in case the borrower fails to pay. A lender for this instance is usually a financial institution such as a bank or a government financial institution.

Mortgage loans can be made by the directly by a borrower to the financial institution or through an intermediary like the contractor or a broker. Most home purchases are funded by a mortgage loan as few individual have enough liquid cash to purchase a property. In some cases, businessmen prefer to purchase property through a mortgage and placing their liquid cash in other interest bearing investments which may yield a higher amount compared to the interest rates paid off from the mortgage.

Related imageA mortgage loan is paid by regular payments that can be made by the borrower on a monthly, quarterly, semi-annually or annual basis for a specified number of years as agreed with the financial institution granting the loan. These regular payments are called amortizations which include the principal, interest and other mortgage related fees (ie. Late payment fees). An amortization schedule is provided to the borrower which is prepared by the lender. It is based on remaining principal left at the end of each billing cycle, multiplied by the interest rate less previous amortization paid.

In relation to mortgage loans, a mortgage insurance may be put in place which is there to protect the lender from default payment. The mortgage insurance is usually part of the fees paid by the borrower as a component to the amortization paid. In the event where a property is foreclosed due to default payments made by the borrower, the lender may sell of the property to recover the amount that was borrowed. In most cases, the property is sold at a very low price to recover the amount soon as possible where the proceeds of the insurance act as a supplement to the sale of the property.

What Are Business Loans?

A Business Loan is a type of loan which is solely acquired by the business for its operations or other business purposes. Business loans singapore can be used for the following reasons:

  1. Equity BasedImage result for Equity Based – some entrepreneurs may enter into a business loan with a bank to have enough liquid assets to jumpstart and support the operations of a business. But before granting the loan for low income, most institutions will require to see a business plan to understand what the business is all about and documents to support its financial returns. If the business has already started its operations, the lender may require the company’s financial statements to support its capacity to pay. Most often, a lender is secured from the company’s equity which technically claims the lender a part-owner of the business.
  2. Asset BasedImage result for Asset Based – A business may require to itself to purchase assets such as machines and properties. The purpose of this loan will allow the business to expand its operations and grow its business. On another perspective, a loan may be used for other forms of expansion but requires the borrower a portion of its asset secured as a collateral. In simple terms, asset based business loan is borrowed against an organization’s asset. The lender on this case grants a loan based on the quality of the asset secured as a collateral.

Image result for company is closed due to bankruptcyThere are cases where a business loan may be unsecured where the debt is not backed up by an asset or equity. In these cases, where a business loan is unsecured, gives a lesser risk to the lender compared to a personal loan. Despite the loan being unsecured, it forms part of the liabilities of a business allowing the lender a claim to its asset in cases where payment is not made. On other cases where a company is closed due to bankruptcy, these unsecured lenders will realize a smaller portion of the loan that has been provided after all secured debtors have claimed over the business’ remaining assets.

With this principle, secured business loans are supported by a lower interest rates compared with an unsecured business loan due to the probability of collection after a claim of bankruptcy.