Loan proceeds refer to the actual amount of money that a borrower receives from a loan after any fees, charges, or expenses have been deducted.
When a borrower is approved for a loan, they are often provided with a specific loan amount. However, the actual amount of money they receive in their bank account or through another disbursement method may be less than the approved loan amount due to various factors, including:
Origination Fees: Some lenders charge origination fees, which are fees for processing the loan application. These fees are typically deducted from the loan amount before disbursing funds to the borrower.
Loan Closing Costs: In some cases, loan closing costs, such as appraisal fees, title insurance, or attorney fees, may be deducted from the loan amount before it is disbursed to the borrower.
Prepaid Interest: If the loan accrues interest from the date of disbursement, the lender may deduct the interest for the initial period from the loan proceeds.
Other Deductions: Depending on the loan terms and the lender's policies, there may be other deductions from the loan proceeds, such as insurance premiums or escrow payments.
The loan proceeds represent the net amount of money that the borrower actually receives and can use for the intended purpose, such as purchasing a home, financing education, or covering other expenses. It's important for borrowers to carefully review the loan terms and understand any fees or deductions that may affect the amount of money they receive from the loan.
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