The need for loans for business and investment capital is currently starting to increase. This is because public awareness of doing business and the role of the government in supporting financial inclusion are increasingly visible. With this opportunity, clearly, we as customers or business actors are required to be more careful and observant in obtaining sources of business capital. In the process of applying for a loan or financing, we often come across several credit terms that sound unfamiliar. For people who are not in the financial industry, this is surely quite burdensome. What's more, for some irresponsible people, this condition can be a loophole. This time, BFI Finance will provide a definition of credit terms that can clarify when applying for a loan. So, later the quality of your loan will be of higher quality. Check it out!
15 Important Credit Terms For You To Know
Collateral
Collateral is a guarantee given to the lender (the creditor) by the borrower (the debtor) at the time of the financing transaction. Usually, the guarantee can be in the form of proof of motor vehicle ownership or a House Certificate.
Installment
Installment is the number of funds that must be paid by the borrower to the lender over a certain period of time. The composition of the installments consists of the remaining principal debt which has been allocated according to the tenor and interest charged.
Interest Rate
The interest rate in loans is the amount of the percentage charged to the debtor for the services provided by the lender.
Effective Rate
The interest charged comes from the remaining principal of the existing debt, so the proportion of interest in installments decreases.
Fixed-Rate
Interest rates that do not change (fixed) during the credit period.
Flat Rate
Effective rate conversion for the same tenor. The interest is assumed to be the same every month during the tenor, which is calculated from the initial principal so it is assumed that the amount of interest paid in each installment is the same.
Floating Rate
The interest rate can change periodically following the development of interest rates in the market during the credit period. The change period follows the contract agreement.
Debtor
People or business entities that obtain credit facilities or loans from financial institutions.
DSR (Debt Service Ratio)
DSR or Debt Service Ratio is the level of comparison between income and obligations or debts owned by prospective debtors and is used as a reference for assessing creditworthiness. A normal DSR level is in the range of 30% to 40%. If the DSR ratio is greater, then the amount of debt borne by the prospective debtor will be greater.
Due date
The due date is the date or period that has been determined by the lender so that the borrower can pay off the installments on time each month. Try not to pay more than the specified maturity limit, because it will have a negative effect on our SLIK (Financial Information Service System) score.
Creditor
Parties or Financial Institutions that provide loans or credit to parties who have met the criteria as borrowers.
Loan to Value (LTV)
The maximum value of credit or financing provided by the lender. The amount of LTV depends on the condition and capacity of the debtor and the collateral when applying for a loan. LTV values usually range from 70% to 90%.
NTF (Net To Finance)
NTF or Net To Finance is the principal debt, or the amount of the loan owned, and must be repaid by the debtor during the term of the financing agreement.
Tenor
Tenor is the period of credit or installments are given to the debtor and must be paid to the lending company. The determination of the length of the tenor depends on the ability of the debtor to pay installments.
Financing Agreement
A financing Agreement is an agreement that regulates credit or financing procedures between debtors and creditors for a certain period of time, including articles that regulate if the debtor defaults.
Those are the 15 credit terms that we often encounter. When you already know the credit terms, hopefully, you will understand more and be sure of applying for a loan. Through BFI Finance, you can apply for a loan for business purposes or for working capital with quick approval. Only with motor vehicle ownership or a House Certificate, you can enjoy the flexibility to get a loan!
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