Before you take out a loan, we want to make sure you know what all the contract terms mean. Here’s a quick guide to the legal jargon:
Personal loan: A personal loan is when you borrow money from a lender (for example, a bank or financial services provider) for your personal use. It’s based on the borrower’s ability and promise to pay it back. There is no collateral attached to it, which means if you (as the borrower) default on repaying the loan, the lender cannot seize your property or car to recoup the loss of your non-payment.
Loan agreement: A written agreement between borrower and lender, detailing the terms and conditions of the loan and the repayment of the loan.
Loan repayment: This is the amount of money that has to be paid back every month towards a loan. This amount may include service, once-off initiation, interest or insurance fees.
Loan term: The period of time set aside for a borrower to back pay the loan. Loan terms can range from 12 to 60 months.
Loan protection insurance: This is insurance taken out by the borrower (that’s you!) to ensure repayment of the loan, in the event that the borrower passes away or is unable to earn an income due to illness or disability. This is also knows as Customer Protection Insurance (CPI).
Interest rate: This is the percentage that’s charged for the loan, or for the use of the money you’re borrowing. The interest rate charged is the percentage of the total amount loaned or borrowed.
Credit history: This is a history or record of a person’s ability to pay their accounts. Basically, it’s a record of how well you’ve been able to meet your financial or debt obligations: how long the debt was held, how much was owed and if payments were made on time. A good credit history is a good start to getting your loan approved easily. Your credit history can be requested as part of a credit report. To see your own credit record, ask Transunion for a free credit report.
Loan account: This is an account opened after the conclusion of the loan agreement. This account is used to track the repayments made towards the loan, as well as the outstanding balance on the loan.
Initiation fees: This is a once-off fee, which you are charged when you loan agreement is initiated.
Service fees: A monthly fee debited from your account for the administration costs of your loan account.