Monthly Payments, Or Some Other Mode of Payments
Monthly Payments, Or Other Choices of Payments!
At anytime you are seeking to borrow money, the lender, usually, offer a monthly payment models as it is becoming the normal and go to models to get the finances back. Should the lender offer other modes/ways of payments? In finance, the easy answer is yes of course, such as Balloon payment, Dumbbells payment, and Principle/Interest payment first, etc..
Let us show it from a finance perspective and not from the borrower or the lender perspective. Finance and the lending process has terminologies that lenders should explore and use more frequently, which is:
1.????? Frequency of Payment
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2.????? Additional Payment Option/amount ????
The Frequency of Payment: It should allow payments to be selected by the borrower, like Monthly, Weekly, Biweekly, daily. If this is allowed, the borrower will realize a full use of the borrowed money while paying less Interest rate, in addition to lower time exposure. The Lender will also benefit, by getting the lent money back with the agreed-on interest rate. Of course there are few additional benefits to both parties. It usually addresses the MSME types of loan needed for their businesses. MSME sometimes require long term loans and better terms, however banks/lenders do not favor long term loans to MSME’s. This method usually helps solve this financing gap.
Additional Payment Option/Amount: It is with similarity to the Frequency of Payment Method, however with positive impact on the borrower. It usually leaves the Loan Amortization Table the same as the pre agreement of the loan terms, with one addition. It allows the borrow to add small amount to the scheduled monthly payment if the borrow choose to do so. An example, if the monthly payment is $100, the borrower may choose to make $105 payment one month and the $110 on a different month and $103 of the Third month, if the borrower is making the $100 a month, the borrower is always in compliance. Why would a borrower do such thing? At the end the borrower will realize the use of the borrowed money with lower interest rate payment.?
Banks and Lender should use creative ways of finances and payment models to address customers needs without laying heavy burden on the business cash flow or debt burden.