Relevance of financial information in quick loans negotiation

Abstract

Nowadays, most loan transactions are contracted by using the exponential discounting as the underlying standard economic model to value this type of financial operations. In a framework of absence of fees to be paid by the borrower, the interest rate of the exponential discount function is, moreover, the true interest rate of the operation. Nevertheless, there exist a set of circumstances which make this identity false. Among others, these characteristics are: the use of linear discount as the underlying discount function, splitting time when using a nominal interest rate, and the existence of fees in a loan at 0% interest rate. All these cases will be analyzed in this paper in the context of the so-called quick loans.

Keywords

• Quick loans, linear discounting, exponential discounting, true interest rate