1. -The difference is the amortization pattern associated with each loan type.
-Advantages to the borrower can be they could possibly save money by paying interest only or set up cases where there is negative amortization.
-Advantages to the lender is possible flexibility to earn a large amount of total interest owed in the early years of the loan’s lifetime.
-They are both available to customers and widely used in daily scenarios with regular people.
2. Amortization is the process of loan repayment over a period of time. It means that the payment against the loan is made by means of installment which will have the interest and principal components. This type of arrangement is done mostly in real estate financing business.
Types of amortization
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The accrual rate is usually the nominal rate divided by the number of periods within a year that will be used to calculate interest. For example, if interest is to be accrued monthly, the nominal rate is divided by 12; if daily, the nominal rate is divided by 365. The payment rate, or “pay rate”, is the % of the loan to be paid at time intervals specified in the loan agreement. This rate is used to calculate payments which are usually made monthly (but could be quarterly, semi-annual, etc.) If the pay rate exceeds the accrual rate, this indicates that some loan repayment (amortization) is occurring. When it is equal to the accrual rate, amortization is not occurring, …show more content…
In general, the nominal interest rates for a specified period (say 10 years) is said to be a composite of three things; (a) real return-such as the growth rate in real GDP (underlying economic growth in the economy, (b) expected inflation , and (c) premium for risk. For example, if a lender quotes a 6% rate on a mortgage loan at a time when 10 year U.S. government bonds are yielding 3.6%, then the risk premium would be 2.4%. If at that same time growth in real GDP is 2.0% and is expected to continue at that rate for 10 years, then expected inflation can be estimated to be 1.6% (or 6%-2.4%-2.0% = 1.6%). Alternatively, if 10 year U.S. Government Bonds that are indexed for inflation (TIPs) are currently yielding 2.0% and 10 year Treasuries not indexed for inflation are yielding 3.6%, the difference, or 3.6%-2.0%, or 1.6% is an estimate of expected
...ancial positions of the borrowers, their lack of knowledge as well as the superior bargaining power of the lender to get the borrowers to agree to these loans. The lenders should bear the major responsibility of these loans, as they are aware of the ramifications of such transactions. The borrowers are also responsible, as they should not enter into contracts without adequately understanding the consequences of such actions. In many cases, the lenders do not provide the information that would assist the borrower in making rational decisions. There are instances when the borrower does not care about the increased penalties, they just want to get their hands on the money, and worry about the consequences later. Some borrowers just live beyond their means but once they get sucked into a predatory loan, they begin a cycle of debt that they just cannot get out of.
defer their loans. Whether the decision is made because it seemed like a sound idea, or whether it
Clean, sleek, efficient, they both work well on a larger scale, but with the growth of the world they have become impartial to others, having to move from person to person without forming attachments to hold them back. Cell phone use has become so widespread that they are not overly special to anyone. They work well for everyone, and present well, but deep down they are a simple machine that each user will trade out once the newer model comes along. Similarly, the modern doctor works better in teams and more efficiently, but they see so many people they have to be less caring to the patients. They move from one to the next as soon as a possible, trained to not leave a second thought. This is not to say they do not care for patients, but they need to not form attachments that will hold them back in the
For example, if you have a balance of $3,768.75 on a credit card, and you want to pay it off in exactly 1 year, you will need to pay $314.06 per month to pay the principal on the balance. However, there is still monthly interest to take into account. If you are being charged $66 in interest every month, then you will not be able to pay off that credit card in 1 year simply by paying the principal. You have to pay both the principal and the interest each month, for a total of
For example, if the cost of the consumer basket rises, say, from $100 in 2007 to $102 in 2008, the average annual rate of inflation for 2008 is 2 per cent. People generally believed that if the inflation rate was higher than normal in the past so they will expect it to be higher in the future than anticipated whereas some takes in consideration the past along with current economic indicators, such as the current inflation rate and current economic policies, to anticipate its future performance. Over the long term, the earnings margins of corporations are inflationary and so are the wage gains of workers. According to rational expectations, attempts to reduce unemployment will only result in higher inflation. To fully appreciate theories of expectations, it is helpful to review the difference between real and nominal concepts. Anything that is nominal is a stated aspect. In contrast, anything that is real has been adjusted for inflation. To make the distinction clearer, consider this example. Suppose you are opening a savings account at a bank that promises a 5% interest rate. This is the nominal, or stated, interest
approach was to be utilized as a framework for financing (Kronenfeld, 2011). In 1972, benefits
Designed for the people having a large sum of loan to pay, compared to your monthly income.
...They also have the option of Deferment or Forbearance, and also the option to see if they qualify for Forgiveness, Cancellation, or Discharge. They are options available for borrowers instead of going into Default.
Debt financing has both advantages and disadvantages. Debt financing is a business’ way to start up, expand, or recover by borrowing money from a preson or company. The money borrowed has to be paid back along with the interest that was accrued during the length of time the loan was carried out. This option is great for company’s that do not want investors. Debt financing is beneficial because the loaners do not often get involved with the company or any decision making within the company. The downfall is the risk that is assumed with the debt which is, the company may not be able to pay back the loaner. In that case, the loaner would go after the owner or partner personally. There are many forms of debt a company is allowed to take on, such as ‘venture’ debt, even if they are a high-risk corporation. ‘Venture’ debt is a form of senior debt ...
But, more and more lenders are now offering the facility of online installment loans no credit check. In an installment loan, your credit score does not set the criteria for acquiring a loan. An installment loan is repaid with scheduled payments and the time period can either be few months or even years. An installment loan is considered a safer alternative for title or payday loan.
advantage, and I will show you how to choose a proper credit card, why you should pay
Product differentiation – by offering different products, services, or product features, the company can charge higher prices, or appeal to different audiences. Use of IS have enabled new products and services, that increase the levels of convenience in using existing products and services. By acquiring PayPal, eBay greatly enhanced the ease with which customers can pay for their products. Google keeps an innovative approach towards search engines, by introducing Google Maps, Google Translate and others, which improves the ease of usage. Using online live chatting systems and social networks contributes to understanding of customers. It also adds value and improves customers’ stickiness to website (Booth, Roberts, and Sikes 2011)
Thus, customers can get and receive information from each other instead of communicating to the corporations or the companies and as result they can easily spread information about company products as well as information about new arrivals
Credit card financial service companies are commonly known to issue private student loans. Therefore, credit card companies would use the time value of money to determine loan payment schedules and the number that students most fear, the ending balance, the future value of the loan. Credit card companies would use the formula for present value of an annuity to determine the payment schedule, and they would use the formula for future value of an annuity to determine how much money the student will end up paying the credit card company at the end of student loan.
...formal banks for credit at low interest rates that allow them to repay loans in easy instalments.