Defaulting on a mortgage typically results in the bank foreclosing on a home, while not paying a car loan means that the lender can repossess the car. In these examples, the lender holds the deed or title, which is a representation of ownership, until the secured loan is fully paid. The most common secured loans are mortgages and auto loans. In other words, defaulting on a secured loan will give the loan issuer the legal ability to seize the asset that was put up as collateral. The lender is issued a lien, which is a right to possession of property belonging to another person until a debt is paid. Secured LoansĪ secured loan means that the borrower has put up some asset as a form of collateral before being granted a loan. There are two basic kinds of consumer loans: secured or unsecured. Generally, the longer the term, the more interest will be accrued over time, raising the total cost of the loan for borrowers, but reducing the periodic payments. The term of the loan can affect the structure of the loan in many ways. Loan TermĪ loan term is the duration of the loan, given that required minimum payments are made each month. Use the Compound Interest Calculator to learn more about or do calculations involving compound interest. In most loans, compounding occurs monthly. Generally, the more frequently compounding occurs, the higher the total amount due on the loan. Compounding FrequencyĬompound interest is interest that is earned not only on the initial principal but also on accumulated interest from previous periods. For more information about or to do calculations involving APR, please visit the APR Calculator. Borrowers seeking loans can calculate the actual interest paid to lenders based on their advertised rates by using the Interest Calculator. It is important to understand the difference between APR and APY. The rate usually published by banks for saving accounts, money market accounts, and CDs is the annual percentage yield, or APY. Loan interest is usually expressed in APR, or annual percentage rate, which includes both interest and fees. For most loans, interest is paid in addition to principal repayment. Interest rate is the percentage of a loan paid by borrowers to lenders. Nearly all loan structures include interest, which is the profit that banks or lenders make on loans. While this does not change the bond's value at maturity, a bond's market price can still vary during its lifetime. Users should note that the calculator above runs calculations for zero-coupon bonds.Īfter a borrower issues a bond, its value will fluctuate based on interest rates, market forces, and many other factors. Instead, borrowers sell bonds at a deep discount to their face value, then pay the face value when the bond matures. Zero-coupon bonds do not pay interest directly. Coupon interest payments occur at predetermined intervals, usually annually or semi-annually. With coupon bonds, lenders base coupon interest payments on a percentage of the face value. Two common bond types are coupon and zero-coupon bonds. Face value denotes the amount received at maturity. The face, or par value of a bond, is the amount paid by the issuer (borrower) when the bond matures, assuming the borrower doesn't default. Technically, bonds operate differently from more conventional loans in that borrowers make a predetermined payment at maturity. This kind of loan is rarely made except in the form of bonds. Bond: Predetermined Lump Sum Paid at Loan Maturity Some loans, such as balloon loans, can also have smaller routine payments during their lifetimes, but this calculation only works for loans with a single payment of all principal and interest due at maturity. Unlike the first calculation, which is amortized with payments spread uniformly over their lifetimes, these loans have a single, large lump sum due at maturity. Many commercial loans or short-term loans are in this category. Instead of using this Loan Calculator, it may be more useful to use any of the following for each specific need: Mortgage Calculatorĭeferred Payment Loan: Single Lump Sum Due at Loan Maturity Below are links to calculators related to loans that fall under this category, which can provide more information or allow specific calculations involving each type of loan. The word 'loan' will probably refer to this type in everyday conversation, not the type in the second or third calculation. Some of the most familiar amortized loans include mortgages, car loans, student loans, and personal loans. Routine payments are made on principal and interest until the loan reaches maturity (is entirely paid off). Many consumer loans fall into this category of loans that have regular payments that are amortized uniformly over their lifetime. Amortized Loan: Fixed Amount Paid Periodically

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