Interest Bearing Note Definition

An interest bearing note is a popular means to make money for lenders. It is basically a loan that is issued from a lender to a borrower. Interest bearing means the loan carries interest at a pre-determined rate, and is repaid based on an established time frame and interest rate. Here are some other essential details.

Before you borrow money from a lender, the lending officer will run your credit, and establish your credit worthiness. This research helps a lender determine the interest rate charged on your note. Keep in mind, your interest bearing note includes the principal balance plus interest. Once your interest rate is determined, and you agree to the terms and conditions of the interest bearing note, you'll have an agreed upon time frame to repay your note.

The interest bearing note comes in many varieties. School loans and home loans are popular interest bearing notes. Some interest bearing notes are government issued, such as municipal bonds and treasury bills. These are investment vehicles that pay you a stated interest rate on your investment. Businesses use interest bearing notes frequently. For example, if a customer owes the business money, the company may convert the account receivable into a note. The customer then becomes a borrower and pays interest, at a fixed rate, until the loan amount is paid.

An interest bearing note is usually a long-term liability that lasts a year or longer. The term of your interest bearing note can vary depending on the principal loan amount and the lender. For example, an interest bearing note for homes typically has a term of 30 years. A student loan may have a term of 10 years or six months depending on the size of the loan. Payments on an interest bearing note are incurred monthly.

Interest is an important factor for both the lender and borrower where an interest bearing note is concerned. As a borrower, the interest on your loan is the amount you are being charged to borrow money. For the lender, the interest rate represents the amount of money that you are making by lending out money. There are no hard-and-fast rules, here. The lender and borrower are free to agree whatever interest rate works for this particular debt.

The benefits for an interest bearing note is that it helps a lender make money in a profitable business investment. An interest bearing note helps borrowers finance education, and the purchase of homes. In some cases, lenders have borrowers that default. In this scenario, lenders lose money from the interest bearing note that borrowers can't repay.