LOAN LOGIC

LOAN LOGIC
That that is is not that that is not that is not that it it is

Well without punctuation grammar can be very confusing. So is life, especially as far as debt is concerned.

Let me help you with the punctuation problem above: 
That that is, is not that that is not. Is that not it? It is.

Let do a little of the same for debt.

1. Effective interest rate - the cost of borrowing money is usually simplified by the annual interest rate.

If you do the math and discover a higher rate, then your account accrues some charges eg ledger fees.

2. Determine your PMT
How much can you pay and for how long.

Don't bite more than you can chew. Knowing your pmt and goals time line can help you not sink into debt.

Your pmt should determine the principal you choose to Lord over you. Not the way around, which is a subtle recipe for a borrower being a slave to the lender.

3. Pay earlier than later.
Once you have received the loan, start thinking of your obligation to repay. A huge fraction of your payment in the early days of your loan goes to clear of the interest.

4. Consider the cost.
A 4% per cent interest rate is considered to be a Risk-free-rate. This is all the free money you can receive. The interest rate compensates The lender over the inflationary risk. The premium above this rate is the return the lender gets for betting on you.

5. IT'S NOT ALL THAT SIMPLE
Last but not the least, remember simple interest can only do business over one year. It is higher than the compound rate. After that forget all the simple stuff, don't underestimate the high tide of compounding. Where interest keeps earning interest. Life to no end. Increasing the compound interest by only 2% can have the effect of almost doubling your repayment period!

Conclusion
I am always told that there is good and bad debt depending on use. On the contrary, I love to keep my fingers crossed and concur with Shakespeare : Neither a lender or borrower be.

What's your loan logic?