Loan proceeds refer to the actual amount of money that a borrower receives from a lender when a loan is disbursed.
When a borrower is approved for a loan, the lender agrees to provide a specific amount of funds to the borrower. This agreed-upon amount is known as the loan principal. However, the borrower may not necessarily receive the entire loan principal upfront.
Loan proceeds are the portion of the loan principal that the borrower actually receives after any fees, charges, or deductions are subtracted. These deductions may include loan origination fees, application fees, points, or any other costs associated with obtaining the loan.
For example, if a borrower is approved for a $10,000 loan but must pay a $500 loan origination fee, the loan proceeds would be $9,500 ($10,000 - $500).
Loan proceeds can be used by the borrower for various purposes, depending on the type of loan. For instance, in a mortgage loan, the proceeds are typically used to purchase a home or refinance an existing mortgage. In a personal loan, the proceeds may be used for debt consolidation, home improvements, medical expenses, or other personal expenses.
It's important for borrowers to carefully review the terms of the loan agreement to understand the total loan amount, any associated fees or deductions, and the amount of loan proceeds they will receive. Understanding the loan proceeds helps borrowers make informed decisions about how to use the funds and plan for repayment.
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