Loan Commitments: Definition, Process, And Types

What is a Loan Commitment? A loan commitment is a formal agreement between a lender and a borrower that outlines the terms and conditions of a loan. It is a promise from the lender to provide a specific amount of money to the borrower, subject to certain conditions being met. …

Joint Credit And How It Works

What is Joint Credit? Joint credit is a type of credit that is extended to two or more individuals who are equally responsible for repaying the debt. It is commonly used by couples, family members, or business partners who want to share the responsibility of borrowing money. With joint credit, …

In-House Financing: Types, Requirements, And An Example

Types of In-House Financing In-house financing refers to a financing option that is provided directly by the seller or service provider, rather than through a traditional lender such as a bank or credit union. This type of financing can be beneficial for individuals or businesses who may not qualify for …

High Ratio Loans: Definition, Calculation, And Example

Definition of High Ratio Loans A high ratio loan refers to a type of loan where the borrower provides a smaller down payment, typically less than 20% of the total purchase price of the property. In other words, it is a loan that has a high loan-to-value ratio (LTV). Why …

Understanding Guarantors: Definition, Example, and Responsibilities

What is a Guarantor? A guarantor is a person or entity who agrees to take on the financial responsibility for another individual’s debt or obligation if that individual fails to fulfill their financial obligations. This means that if the borrower is unable to make the required payments, the guarantor is …

Fixed-Rate Payment: Definition, Mechanism, And Illustration

Definition of Fixed-Rate Payment A fixed-rate payment is a type of payment that remains constant for the duration of a loan or financing agreement. It is a predetermined amount that the borrower is required to pay on a regular basis, typically monthly, to the lender or financial institution. This type …

Financing: Importance And Relevance

The Role of Financing in Achieving Financial Goals Financing plays a crucial role in achieving financial goals. Whether it’s starting a business, buying a home, or pursuing higher education, most of us rely on some form of financing to make our dreams a reality. One of the main reasons financing …

Finance Charges: Definition, Regulation, And Example

What are Finance Charges? Finance charges refer to the fees or interest that borrowers pay to lenders for the use of borrowed money. These charges are typically added to the principal amount of a loan or credit card balance and can significantly increase the overall cost of borrowing. Finance charges …

Delayed Draw Term Loans And Their Mechanics

What are Delayed Draw Term Loans? Delayed draw term loans are a type of loan that allows borrowers to access funds in multiple tranches or disbursements over a specified period of time. Unlike traditional term loans, where the entire loan amount is disbursed upfront, delayed draw term loans provide flexibility …

Collateral: Definition, Types, And Examples

What is Collateral? Collateral provides a level of security to the lender, as it reduces the risk of default. It gives the lender a tangible asset that can be used to recoup their losses in case the borrower is unable to repay the loan. This is especially important for loans …

Bridge Loans: How They Work And Examples

What Are Bridge Loans? A bridge loan is a short-term loan that is used to bridge the gap between the purchase of a new property and the sale of an existing property. It is a temporary financing option that helps borrowers secure the funds they need to complete a real …

A Bank’S Legal Lending Limit: How It Works

Importance of a Bank’s Legal Lending Limit The legal lending limit is a crucial factor in the banking industry as it helps regulate the amount of risk a bank can take on when lending money. It serves as a safeguard to protect the bank and its depositors from excessive risk …

Trade Line Definition How It Works and Included Records

Trade Line Definition A trade line is a term used in the financial industry to refer to any account that appears on a credit report. It represents the credit history of an individual or a business, including information about loans, credit cards, mortgages, and other types of credit accounts. Trade …

The 5 Cs of Credit: Understanding, Application, and Importance

Creditworthiness: Evaluating Borrowers’ Ability to Repay Assessing creditworthiness involves evaluating various factors that indicate a borrower’s ability to repay a loan. Lenders typically consider the following aspects: Payment history: Lenders review a borrower’s past payment history to determine if they have a track record of making payments on time. This …

Term Loan Definition Types and Common Attributes

Term Loan Definition Unlike a revolving line of credit, which can be used repeatedly, a term loan provides a one-time lump sum of money that is to be repaid in regular installments. The repayment schedule is predetermined and typically includes both principal and interest payments. The interest rate on a …

Tenor: Definition, How It Works, and Example

Tenor: Definition, How It Works, and Example Tenor is a term commonly used in the financial industry, particularly in the context of loans and investments. It refers to the length of time that a loan or investment is expected to last or be outstanding. The tenor of a loan or …

Senior Bank Loan Definition How It Works Rates & Risks

What is a Senior Bank Loan? A senior bank loan is a type of loan that is provided by a bank or financial institution to a borrower who is considered to be a low-risk borrower. This type of loan is typically used by large corporations or businesses to finance their …

Rule of 78 Calculation and How Lenders Utilize It

What is the Rule of 78 Calculation? How does the Rule of 78 Calculation work? The Rule of 78 Calculation assigns a specific weight to each monthly payment, based on the number of months remaining in the loan term. The weights are determined by adding up the digits from 1 …

Revolving Loan Facility: Understanding How It Works

Key Features of Revolving Loan Facility A revolving loan facility is a type of credit agreement that provides borrowers with access to a predetermined amount of funds that can be borrowed, repaid, and borrowed again. This type of loan is commonly used by businesses to manage their short-term financing needs. …

Revolver Definition in Lending and How It Works

What is a Revolver in Lending? A revolver loan is typically offered by financial institutions, such as banks, to individuals or businesses with established creditworthiness. It is commonly used for short-term financing needs, such as managing cash flow fluctuations, funding working capital requirements, or covering unexpected expenses. The credit line …

Recourse: Lenders’ Rights And Frequently Asked Questions

What is Recourse in Loans? Recourse in loans refers to the legal right of a lender to pursue additional assets or financial resources from a borrower in the event of default on the loan. It provides the lender with a form of security, ensuring that they have recourse to recover …

Purchase Money Security Interest (PMSI) Definition and How It Works

Purchase Money Security Interest (PMSI) Definition and How It Works A Purchase Money Security Interest (PMSI) is a legal term used in the context of loans. It refers to a specific type of security interest that is granted to a lender when they provide financing for the purchase of a …

Personal Guarantee Definition and Role in Loan Requirements

What is a Personal Guarantee? A personal guarantee is a legal agreement in which an individual, typically a business owner or executive, agrees to take personal responsibility for the repayment of a loan or debt if the borrower is unable to fulfill their obligations. This means that if the borrower …

Periodic Interest Rate Definition How It Works and Example

Periodic Interest Rate Definition A periodic interest rate is a measure of the interest rate that is applied to a loan or investment on a periodic basis, such as monthly or annually. It represents the cost of borrowing or the return on investment over a specific period of time. The …

Non-Recourse Finance: Definition, Uses, Vs. Recourse Loan

Non-Recourse Finance: Definition, Uses, Vs. Recourse Loan Non-Recourse Finance Recourse Loan Non-recourse finance is a type of loan where the lender’s only source of repayment is the collateral provided by the borrower. If the borrower defaults on the loan, the lender can only take possession of the collateral and cannot …

Non-Recourse Debt: Definition, Example, vs Recourse Debt

Non-Recourse Debt: Definition, Example, vs Recourse Debt Non-recourse debt is a type of loan where the borrower is not personally liable for repayment. In the event of default, the lender’s only recourse is to seize the collateral used to secure the loan. This means that if the borrower is unable …

Nonperforming Loan (NPL) Definitions, Types, Causes, Consequences

Nonperforming Loan (NPL) Definitions Types of Nonperforming Loans There are different types of nonperforming loans, depending on the nature and characteristics of the loan: Type Description Commercial NPLs These are loans given to businesses or corporations that have become nonperforming due to financial difficulties or other reasons. Consumer NPLs These …