Is a portion of the repayment of loan with interest in equal periodic payments.
What is a payday loan?
A payday loan is a loan given by a micro-lender. It is called a payday loan, because you generally borrow just enough to get through to your next payday, upon which the repayment is due.
What is principal amount?
The principal amount is the total amount of money borrowed. For example, Elda Allison borrowed N$25 000.00 form Cashnet Finance; the principal amount in this case is N$25 000.00.
To calculate the amount that must be paid back Allison, he must know the following:
- Monthly interest
- Repayment term
- Total amount of the loan (principal)
The formula for calculating a credit repayment is as follows:
PMT= P x (1+r) n P = Principal amount or initial amount of credit (N$25 000.00) r = interest rate per repayment-term (30% per month) n = number of instalments
What is the repayment-term of the credit?
The repayment-term is the agreed time in which you intend to repay the credit. For example, Allison must repay the credit over a period of 5-months.
What is the interest rate?
An interest rate is a percentage of the borrowed money that the borrower must pay as interest to the lender, over a period (usually months). To get the monthly interest rate of Allison credit, we divide the total interest by 5.
Consider the following basics before borrowing:
- Affordability – can I afford the repayments without compromising my other financial commitments?
- Repayment term – how long would it take me to repay the loan, and can I afford to pay over the recommended period?
- Interest rate – how much is the interest rate?
- Hidden fees / other costs – does the lending institution charge any other fees like administration fees, stamp duties, collections fees, or penalty interest?
- Credit worthiness / credit record – Is my standing good enough to qualify for the loan?
Before borrowing, ask yourself the following questions:
Do I really need to borrow?
Can I afford to borrow?
Am I choosing the right financial institution?
Does this loan product suit my needs best?
Do I understand the terms and conditions and the fine print of the loan product?
! Whatever the purpose of the loan is, the borrower should ensure that she/he understands the terms and conditions of the loan agreement.
! Don’t give in to peer pressure by buying things when you do not have to. Buy ONLY when you need to.
NB
- Always go for the lowest interest rate, the higher the interest rate the more expensive the loan. Pay back your debts as fast as you can.
- The longer the repayment-term of the loan is, the more money you will have to pay in total.
- REMEMBER! if you cannot pay back the money on time it will have a negative effect on your credit record which makes it difficult for you to easily borrow money in the future.
