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Simple English definitions for legal terms
contract rate
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A quick definition of contract rate:
Contract rate: This is another term for interest rate. It refers to the percentage of money that a borrower has to pay back on top of the amount they borrowed. For example, if someone borrows $100 with a contract rate of 5%, they will have to pay back $105 in total.
A more thorough explanation:
Definition: The contract rate refers to the interest rate specified in a loan agreement or a bond contract. It is the rate at which the borrower agrees to pay interest to the lender over the life of the loan or bond.
Example: If a borrower takes out a $10,000 loan with a contract rate of 5%, they will be required to pay $500 in interest each year until the loan is fully repaid.
The example illustrates how the contract rate is the agreed-upon interest rate between the borrower and lender. It is important to note that the contract rate may differ from the market interest rate, which is the prevailing rate for similar loans or bonds at the time of issuance. The contract rate is typically based on factors such as the borrower's creditworthiness, the length of the loan or bond, and the prevailing market conditions at the time of negotiation.