Principal and Interest Rate Defined

January 30th, 2012 by Jennifer Frankel

As we head into the new academic year, many international students will be looking at international student loan options. Comparing loans is not easy, especially with bank terminology. One of the most important terms that will effect students is how much you are going to pay back over the course of your loan. Loans are repaid in two parts: principal and interest rates. See below for the principal and interest rate defined:

Principal
Principal is the total amount of money you were loaned. Let’s say you are planning to attend New York University and you took out a $30,000 loan to cover tuition, room and board, books, etc. This amount is what you have borrowed from the bank, and thus will be expected to pay back.

Interest Rate
There is a cost to borrowing, and this is known as the interest rate. This is the amount that you pay back to the bank on top of what you initially borrowed (the principal). Lenders typically have a range for the amount of interest they charge, which will depend on you (and your co-signer’s) creditworthiness. Typically this is expressed on an annual basis known as the annual percentage rate (APR) which will be finalized after your loan application has been submitted and reviewed. There are two types of interest rates that will be disclosed before you apply for a loan:

  • Variable Interest Rates – These interest rates move up and down depending on the interest rate index. The index is a floating rate, called the prime rate, which is typically added to a margin which is determined based on your creditworthiness. The true margin will be disclosed and finalized once your application has been reviewed.
  • Fixed Interest Rates – These interest rates will remain the same over the entire length of your loan.

Most student loans are fixed rate interest, however many private student loans do offer variable interst rate. It is important to read the terms and conditions to know how the principal and interest rate are defined, how it will be determined, and how it may change.

4 Comments

  1. KYABAGGU MARGARET says:

    What if I don’t have any security to offer for the loan at the moment, does it mean that I am not obligated to it or studying abroad because the resources are not their? And which banks are willing to offer loans?

  2. JOSEPH NYERERE says:

    How should i keep on waiting to me to informed so that i can evenly send a report to the UNIVERSITY that required to attend please can i be informed that i can evenly get prepared for other things.looking forward to hearing from you thanks.

  3. blindblom says:

    Thank you for your question!

    The borrower and co-signer are legally obligated for repayment of the loan. The loan will appear on the co-signer’s credit history as an outstanding obligation. If the borrower fails to repay, the co-signer would have to repay.

    You can start the application process and find all available lenders here.

  4. Karuzi Mathias says:

    My principal interest rate is fixed interest rates and I want to borrow that many for helping in my studies so I will pay back after end studies
    KARUZI Mathias
    best reguards.

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