Method of Payment
The method of payment is how the borrower intends to pay the lender.
For example:
Bill lends his friend Sally $400 for her car payment. She can pay him back in many different ways:
Method |
Interest |
Payment |
To be paid |
Paid by |
One lump sum |
-- |
$400 |
In full |
Fixed date (e.g. March 3) |
Regular payments |
-- |
$100 |
Monthly |
Four months' time |
Regular payments towards interest |
5% |
$20 |
Monthly |
End of term + principal ($400) |
Regular payments towards interest + principal |
5% |
$120 |
Monthly |
Four months' time |
Repayment Schedule
The schedule outlines when the loan needs to be repaid by. It can be in one of two ways:
- Fixed date (e.g. May 30)
- Notice to repay/demand loan agreement (e.g. The lender issues a notice to repay for 7 days. The borrower must pay within that time frame).
The schedule also includes how often the money will be repaid, in what amount and when the payment is due (e.g. $200 to be paid on the 1st of each month).
Loan Amount
The loan amount is the amount of money being lent to the borrower. Interest can be charged on the loan amount (usually set as a percentage) and this interest is added to the principal amount (or original amount loaned).
You also have the option to compound the interest, which means interest will be charged on the principal amount as well as the previously accumulated interest, resulting in a slightly higher interest rate overall.
Lender and Borrower Details
A Lender and borrower can be either an individual or corporation.
Collateral
A Loan Agreement may include collateral, which is a form of security for the lender in the event the borrower is unable to repay them.
Common forms of collateral may include a vehicle, equipment, or jewelry.