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Gerald, Esq
Gerald, Esq, Lawyer
Category: Business Law
Satisfied Customers: 4189
Experience:  30 years of experience
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I am looking to apply personal loan & wanted some

Customer Question

Hi, I am looking to apply for a personal loan & wanted some clarification on some terminology.
Submitted: 2 years ago.
Category: Business Law
Customer: replied 2 years ago.
Hi, I'm looking to apply for a personal loan & called the loan provider to ask the following question: I asked them if the loan interest was simple or pre-computed : that is. if I paid a 5 year loan off in one year, would I be paying the interest for one year or for the whole 5 year amount; Whereas, the provider answered in the following fashion, stating that I would only be charged interest for the one year. Once the balance of the loan was paid off, in the year period, I would NOT be charged any interest. As I thought about the answer, after the call ended, I am still not clear if I received a clear answer to the question. Can you provide guidance to my initial question to the provider & if the question was answered correctly. Thank you
Customer: replied 2 years ago.
According to the financial dictionary, in a simple interest loan, you will only be responsible for the interest for the period of the loan that you hold any balance, simple interest; And NOT pre-computed interest that would be computed into the loan at the beginning of the loan for the whole loan time period & thus even if you paid off the loan early , the computed interest would be included. Thanks
Expert:  Gerald, Esq replied 2 years ago.


Thank you for using Just Answer. I want to provide you the best service I can. Please feel free to ask any follow up questions you have.

I am an attorney with 30 years of experience; I hope to provide you information that will help you in resolving your question.

In regard to a personal loan the best terms for the brrower are "simple interest" and "no pre-payment penalty." These are the terms you want in your agreement in regard to the interest.

As to your direct question, on a simple interest loan you only pay the interest on the mony while you have it. So if you hold the loan for one year you pay that years interest. Of course since interest is calculated on a percentage basis, the earlier payments are comprised more of interest than of principle.

Please note that under federal law the lender must provide you a truth in lending statement prior to you signing for the loan. The truth in lending statement with specify the amount of interest you will pay.

In regard to pre-payment penalties, this is not a good term for you because it requires you to pay a specified amount if you pay the loan early. So make sure you have no pre-payment penalty.

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Good luck,

Please note: Information given is not legal advice. Only your local attorney can give legal advice. I can't establish or accept an attorney-client relationship with you. All posts are available for public viewing.