Amount financed

What is an amount financed?

The amount financed refers to a borrower’s loan principal and other costs and fees that have been rolled into the loan’s monthly payments. If the borrower makes a deposit, that money might be applied before the amount financed is set.

The amount financed plays a part in the interest rate determined by the lender. That’s because a larger loan deposit or mortgage down payment means the borrower is financing less.

Deeper definition

Amount financed is a required term for any contract between lenders and borrowers. As stated in the Truth in Lending Act, the actual figure must be disclosed to the borrower before he agrees to any transaction.

Any fees that may be included in the total must be clearly stated in writing and can cover a range of costs from loan underwriting and processing to loan recording and legal fees. This disclosure helps the borrower to distinguish between the loan principal from the total loan figure, including fees.

When tallying the amount financed, deposits are also factored into the total. Some lenders may require the deposit to be applied to the total.

Amount financed examples

Jerry applied for a $10,000 personal loan, but that amount isn’t likely what his loan total will be at closing.

Instead, his total will include fees set by the lender that will be rolled into the loan total and assessed at the time of closing. If the fees total $200 and the lender allows Jerry to roll them into the loan, the amount financed will be $10,200.

 

Other Loans Terms

Add-on interest loan

Add-on interest loans have interest baked into the principal. Bankrate explains.

Hypothecation

Hypothecation is the act of securing a loan with collateral. Bankrate explains.

Voluntary lien

Voluntary lien is an important term to understand. Bankrate explains it.

Add-on interest

Add-on interest is calculated at the start of the loan. Bankrate explains.

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