Loan Terms
There are many ways to structure loan repayments ranging from regular installment plans to a
single lump sum payment. Fosik recommends that the loan be paid back in regular installments,
which are commonly monthly, quarterly or annually.
There are also many ways to structure installments. You should choose the installment system
that best suits the interests of both the borrower and the lender. Below are some of the common
ways to structure loan repayments.
Regular. In this system, all the payments are the same and all at regular intervals until the loan and interest is paid. This is the simplest system to set up and manage.
Increasing. In this system the loan repayments gradually increase
over the life of loan. The payments are made at regular intervals. This type of payment structure
is more affordable to the borrower in the early periods of the loan.
Cyclical. In this system the payments would be higher during certain periods.
The type of structure may suit borrowers whose ability to pay is seasonal.
Lump sum. In this system the loan plus interest is paid off in one
single payment at the end of the loan period. This is the simplest repayment system. However,
Fosik does not recommend this system as a large repayment may be difficult to make when the
time comes. It is also the system with highest risk for the lender.
There are many possible variations to these structures. Also, one structure may be changed to another if necessary during the period of the loan.
Some of the variations include:
Deferred Payments. Payments may be deferred during certain periods depending on the circumstances. It is common for payments to be deferred during the first periods of the loan. Payments may be deferred during certain periods during the year.
Interest Only Payments. In this system only interest is paid. This minimises the payments for the borrower yet provides a regular income return for the lender.