Basic Loans

A three minute guide for fast understanding

Taking out a loan of any kind is an important decision. Are you unsure about some of the basic terms, such as a ‘decision in principle’ and a ‘loan agreement’? Let us explain.

Back to basics: what exactly is a loan?

Loans have always seemed to be around. The Oxford English Dictionary defines a loan as: “A thing that is borrowed, especially a sum of money that is expected to be paid back.”

But it is difficult to find the point in time at which loans come into existence.

Some of the oldest records go back past the ancient cultures of Rome and Greece. Some records even go as far back as Assyria and Babylonia: ancient civilisations circa 1700BC where merchants loaned grain to farmers and traders.

Modern loans are much different. A typical loan is a financial contract in which one party agrees to give a specific amount of money to another. The borrower pays back in a set period of time, with interest payments at an agreed rate, and sometimes additional charges for the administration of the loan.

Before a borrower receives money, they might first contact a lender to receive a decision in principle.

What is a decision in principle?

Similar to an agreement in principle, or mortgage in principle, this is the process with which the lender checks initial information.

David Hollingworth, an expert on mortgages, said: “A lender will take some basic information and perform a credit search and credit score before coming up with a figure that ‘in principle’ it would be able to lend.”

Although it is not a guarantee, it is useful. It indicates to the borrower how much they may be able to borrow. And in many circumstances it is fairly accurate. That is, unless the lender discovers certain information when they conduct full due diligence and which was not initially available.

What is an agreement?

A loan agreement is a financial contract that the lender and borrower agree upon. There are many types of agreements, but generally speaking, they outline the promises made by each party.

The contents of a loan agreement can vary. But there are some typical things you can expect to see:

• Parties and addresses
• Facility and purpose
• Repayment provisions
• Interest and interest periods

And many more.

What kind of loans are available?

With Affirmative you can get short-term finance between £10,000 and £2 million with a bridging loan. Your loan can be ready in hours. And it is secured against an existing property or a property being purchased as a first or second charge. Typical APR 28.9% (first charge). It is easy to apply.

For more about fast finance call our Manchester office on 08000 44 84 84.