When a borrower enters into a loan with a lender, documentation is signed outlining the terms of payment on the debt. These terms are known as the repayment provision.
Significance
The terms of repayment on a debt can greatly alter the overall cost of the loan. If the interest rate is low and the length of the loan is short, the interest paid could be very low. However, the longer the term and the higher the interest rate, the more interest is paid by the borrower.
Function
The repayment provision of a debt outlines exactly the payment plan for the loan. The borrower will know exactly when to pay what amount to the lender due to these documents.
Time Frame
These documents are finalized at the loan closing. However, the original documents will outline the prospective repayment plan for the borrower as well.
Considerations
A borrower should shop around and consider several offers prior to procuring a new loan to ensure the repayment provisions are in line with his financial ability to repay.
Benefits
While the repayment provision shows the borrower the amount owed and when it is owed, it also protects the borrower from the lender changing any terms of the original agreement.
