Definition of Loan constant:
A loan constant is a percentage that shows the annual debt service on a loan compared to its total principal value. The calculation for a loan constant is the annual debt service divided by the total loan amount. When shopping for a loan, borrowers can compare the loan constant of various loans before making a decision. The loan with the lowest loan constant will have lower debt service requirements, meaning the borrower will pay less in interest and principal over a given period. Loan constants are only applicable to fixed interest rate loans and not loans with variable interest rates.
Required cash flow needed annually that will service both the interest and principal on a loan obligation. The value is calculated as a percentage using the actual value of the debt repayment and dividing it by the outstanding principal.
A loan constant is a comparison of a loan's annual debt service to the loan's total principal value. A loan's debt service is the total cash the borrower must pay to cover the repayment of interest and principal on the loan for a given period.
How to use Loan constant in a sentence?
- When shopping around for a loan, borrowers will often opt for the loan with the lowest loan constant as this means the debt service payments for that loan will be lower.
- Principal, loan interest rate, and the length and frequency of payments are used for calculating a loan constant.
- A loan constant is a percentage that shows the annual debt service of a loan compared to the total principal value of a loan.
- Loan constant tables and calculators are popular for calculating mortgage payments.
Meaning of Loan constant & Loan constant Definition