Loan Settlement Structure Charges and Agreements

Loans

If borrowed in good faith and following a strategic plan, a loan can be a very good source of funds. Think about it, you can finance your business, pay a hospital bill, renovate your house; buy a car the list is endless. Truth is you cannot do without a loan. You will need to borrow money at some point in your life. Most middle class income earners in the US have taken mortgage loans. These have helped them buy homes they could not have afforded by virtue of their little income. The uphill task comes when you are paying back the loan.

The loan settlement structure given by a lender is designed in such a way that you will be paying a specified amount every month for a specified period of time. Usually this can range from 2-15 years depending on the type of loan. Mortgage financing takes between 15-20 years to clear. That is categorized under long term loans. Short term loans like payday loans and those for buying a car take shorter time to repay. If you compare the amount you borrowed against what you are expected to pay, you will notice that after the loan is cleared, you will have paid more. This is as a result of interest and other charges that the lender has transferred to you.

Situations arise where you find that you have started going slow on your repayment. Suddenly, you don't have enough money to meet your repayment and daily obligations. You should not forget that apart from what is deducted from your pay every month, you still need to buy food, clothing, fuel your car and pay other bills. With the shifting rates of inflation, it becomes difficult to sustain a livelihood. Inflation is an economic condition that results in increase in the price of basic commodities such as food. What happens is that if you could buy one unit of an item for a dollar, you find that the same unit is now going for two dollars.

When you find that you have been caught up in such a condition, you need to take some measures to arrest it. You see, the lender is still waiting for his money. Hey, you went to him when you needed help and got some cash. It is now your turn to respond by paying back what you owe. A loan settlement structure can be revised to counter difficult economic situations. One of these methods is known as restructuring. This is where you request the lender to review repayments such that you get to pay less over a longer period of time. In this case the lender can give you additional time such as an extra year.

Look at it this way, assuming you borrowed $10,000 at an interest rate of 10 percent. The interest alone amounts to $1,000 meaning in total you will pay $11,000 in order to settle the loan fully. For roundness of figures, let us assume further that you were given a 10 month repayment period. That makes it $1,100 per month. Say after five months you realize that things are up to your neck and you cannot afford another $1,100. If he agrees to restructure and gives you an additional five months, here's what will happen. At this point, the balance on your loan is $5,500. If you divide this by 10 being the total time repayment period you get $550.

Your monthly repayment amount has reduced by half meaning you have more cash to spend on other things. That is an example of what a well-designed loan settlement structure can do.