Loans and Effective Interest Rate

Session

Management, Business and Economics

Description

Credit is a type of debt. Like all debt instruments, a loan involves the redistribution of financial resources over time, between a lender and a borrower. With a loan, the borrower initially receives or borrows a sum of money, called principal, from the lender, and is obliged to repay or pay the lender an equal amount of money later. Usually the money is returned in regular installments, with partial returns or in annuities where the installments have much the same. Credit is generally given at a cost, which we call interest on the debt, which is presented as an incentive for the lender to lend. According to the law on a loan, all these obligations and restrictions are defined in the contract, where the borrower can be subject to additional restrictions related to the loan, which are called contractual loan commitments. Interest is the cost that the borrower pays to the lender over a period of time, usually calculated on an annual basis. This amount paid is intended to compensate the lender for the sacrifice he is undertaking in losing the immediate use of his money, for the reduction of the value of money due to inflation during the duration of the loan, and last, for the risk posed by the lending process (e.g. non-payment by the borrower of the amount lent).

Keywords:

credit, loan, annuity, capitalization, interest, installments

Session Chair

Bashkim Nurboja

Session Co-Chair

Florin Aliu

Proceedings Editor

Edmond Hajrizi

ISBN

978-9951-437-96-7

Location

Lipjan, Kosovo

Start Date

31-10-2020 3:15 PM

End Date

31-10-2020 4:45 PM

DOI

10.33107/ubt-ic.2020.286

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Oct 31st, 3:15 PM Oct 31st, 4:45 PM

Loans and Effective Interest Rate

Lipjan, Kosovo

Credit is a type of debt. Like all debt instruments, a loan involves the redistribution of financial resources over time, between a lender and a borrower. With a loan, the borrower initially receives or borrows a sum of money, called principal, from the lender, and is obliged to repay or pay the lender an equal amount of money later. Usually the money is returned in regular installments, with partial returns or in annuities where the installments have much the same. Credit is generally given at a cost, which we call interest on the debt, which is presented as an incentive for the lender to lend. According to the law on a loan, all these obligations and restrictions are defined in the contract, where the borrower can be subject to additional restrictions related to the loan, which are called contractual loan commitments. Interest is the cost that the borrower pays to the lender over a period of time, usually calculated on an annual basis. This amount paid is intended to compensate the lender for the sacrifice he is undertaking in losing the immediate use of his money, for the reduction of the value of money due to inflation during the duration of the loan, and last, for the risk posed by the lending process (e.g. non-payment by the borrower of the amount lent).