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Author: Banner Finance

What is an Interest Rate on a Loan?

The interest rate is a fee the lender charges to the borrower for borrowing money. It can be a fixed interest rate (only one primary amount) or a variable interest rate (primary amounts vary). For example, Jesse has a fixed interest rate of 3% on an $800 loan he took out to pay for a […]

What Does Interest Paid Mean?

The total amount of interest paid over the term of the loan. It is calculated by the total paid minus the principal. By way of illustration, let’s say that Joyce finishes paying off the installment loan she took out to complete some home repairs. Her original balance (the principal) was $350. The total she paid […]

What is Loan Interest?

Interest is an additional percentage of a loan payment that is added to the principal of a loan paid every month to the lending agency (oftentimes, a bank) in exchange for holding the loan. The interest on a loan, once the loan is paid in full, is in addition to the principal amount the borrower […]

What is an Installment Loan?

A traditional installment loan (TILs for short) is when you borrow a specific dollar amount from a lender and you agree to pay the loan back in two parts: a portion of the payment going to the principal, and a portion of the payment going to the interest. The principal is the amount the person […]

What is a Grace Period?

A period of time a borrower is given after the due date to pay the loan before incurring a penalty. Most often, a grace period for an installment loan is about 15 days after the payment due date. Typically, no late fees will be charged during this period, and it does not result in cancellation […]

What Does it Mean to Default on a Loan?

Defaulting describes what happens when a borrower who has a loan in repayment fails to make payments over a specific period of time. Defaulting on a loan can have a significant impact on your financial record and seriously impact your credit score. It may also come with legal implications, so it is important to make […]

What is Debt-to-Income Ratio?

The debt-to-income ratio is a formula showing your monthly debts, divided by your monthly income. It is generally used to determine if your finances are in good shape and what, if any, improvements can be made to have less of your monthly income go towards monthly debt. Your debt-to-income ratio is also used by lenders […]

What Does Borrower Mean?

A borrower is a person who requests a loan and receives the funds to fulfill a need such as an emergency purchase, money for school tuition, or other obligations. A borrower is also the person who is expected to pay the loan back. The outcome of those payments can have significant effects their credit. For […]

What Does Amortization Mean?

Amortization is a method of computing equal periodic payments on an installment loan. When payments on a loan are initially made, they primarily go towards interest on the loan following an amortization schedule. An example of an amortization repayment schedule on an amortized loan payment might be the following: Steve takes out an installment loan […]