Payment frequency represents how often investors receive principal or interest payments.
Once a loan has been approved by the lender, payment frequency will be based on initial factors including the financial stability of the borrower, and the type of loan.
Here are a few payment frequency schedules:
The full amount owed is repaid immediately, with consideration to the approved interest rate.
Monthly payment is made throughout a full financial year. The loan amount is divided over 12 months, giving an estimate of the monthly repayment.
Each quarter an estimated amount will be paid to cover the amount owed. Lenders will set up a designated estimate, based on the size of the loan and the associated interest.
Bi-annual, bi-monthly, or bi-weekly payments can offer less burden on the borrower and lower the risk for the lender.
For example, if a loan is repaid over a bi-weekly basis, the loan amount will be multiplied by 12 (months) and divided by 26 (weeks). This formula will deliver an estimate to be paid every second week.
Some lenders will allow borrowers to make an annual repayment on their loan, but this may take longer to repay the amount owed. With annual repayments or instalments, borrowers will need to consider the accumulated interest rate above the repayment amount.
Payment frequency can help determine the full amount owed on a loan. Lenders will include all the necessary information regarding the payment frequency, including the interest rate and associated risks. Some lenders will state how the interest rate is divided when selecting a longer repayment schedule.
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