Frequently Asked Questions
How can basis points be used as perks or incentives by lenders?
Basis points, a common term in the lending industry, can be used as perks or incentives by lenders to attract borrowers. Essentially, a basis point is one one-hundredth of a percent, or .01 percent. When it comes to loans, lenders may offer a lower interest rate if the borrower agrees to pay basis points. This essentially means that the borrower is paying a different, usually lower, interest rate on the loan. For instance, let's consider a scenario where you borrow $100,000 to expand your business. The lender offers you an interest rate of 6 percent if you agree to certain conditions. If you don't agree to these conditions, your rate will be 6.25 percent. The difference this makes is significant. With the 6 percent rate, your monthly payment would be $1,110.21, with total payments amounting to $133,224.60 and total interest of $33,224.60. However, with the 6.25 percent rate, your monthly payment would be $1,122.80, with total payments amounting to $134,736.12 and total interest of $34,736.12.
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