Not long ago we wrote about difficult words when taking out a mortgage. Research showed that more than 40% of people with a mortgage have difficulty with mortgage terms. When applying for a loan, you also have to deal with words that you do not use every day.
Your loan and the theoretical term
I recently received a question about theoretical duration. With a personal loan, why do we simply talk about term and in the case of a continuous loan about theoretical term? What exactly does theoretical maturity mean and why can it differ from the real maturity of a loan?
Duration ofcontinuous loan
The theoretical duration of a loan is the duration of that loan under certain conditions:
- The interest rate remains the same.
- The loan amount is fully included.
- The repaid amounts will not be withdrawn.
- The installments are paid.
- The loan amount is not changed in the interim.
The theoretical duration of an ongoing loan is an example. This will give you an idea of the progress of your loan under the aforementioned circumstances.
Continuous loan: flexible loan
But let flexibility now be one of the characteristics of a continuous loan. You can take out and repay this loan whenever you want. The continuous loan also has a variable interest rate.
So there is a good chance that one of the above points will change at a given moment. This will of course affect the time that your loan runs. As a result, the current duration differs from the theoretical duration calculated in advance.
Duration of personal loan
With a choice for a personal loan you opt for security instead of flexibility. A personal loan means borrowing a fixed amount at a fixed interest rate and paying off your loan in fixed monthly installments.
So you know exactly where you stand, including the duration. In other words: the conditions remain the same. That is why with a personal loan the term is ‘just’ the term.
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