Actuarial Loan

What is an actuarial loan? When speaking in terms of lending, actuarial is a way to calculate a refund or a rebate of finance charges which have been precomputed. Contracts call for different things. Some contracts want simple interest, which is interest that is actually earned in arrears and isn't included in the note amount. The amount of other contracts does include the interest, which can either be add-on or precomputed. If a precomputed interest loan is paid off by the borrower early, the borrower is then legally obligated to receive either a rebate or a refund of the portion of precomputed interest which was unearned.

There are several methods that can be used to calculate rebates, although any given lender may be limited in the variety of methods they can use by the laws of the state. Generally, the rebates which are calculated using the actuarial method tend to come out more in the favor of the borrower than are loans that are calculated under another popular method called the Rule of 78s. It is very important to look at which method is going to be used before signing any sort of loan contract. It can't save the borrower lot of money in many situations. An actuarial loan is a very good choice for people who are looking to borrow money. Although actuarial loans are used very often, they are so complicated that they take a computer program to calculate. Cheap and even free versions of this software can be downloaded off the internet. It is important for borrowers and lenders to be able to calculate the interest o­n their own so that everyone understands the agreement.

As with all financial instruments, actuarial loans can be extremely beneficial in the right situation, but it is important to research and familiarize o­neself before entering into such an agreement.