90-Day Loan Definition
A 90-day loan note with a bank is a short-term financing instrument with a fixed interest rate that can be issued to consumers or businesses. The note is usually paid as a coupon. This means that the entire value of the loan with interest is repaid on the 90th day after the loan is issued. The interest is also usually high, due to the short-term turnaround.
In order to keep profits high and receive and adequate turnaround on capital, banks issue high annual percentage rates (APRs) for short-term notes. To calculate what actually must be repaid, divide the APR by four to find the actual rate. For a loan with 14 percent interest, there is a 3.5 percent rate that must be returned. For a $1,000 short-term loan, a total of $1,035 would be returned after 90 days.
It is difficult to find a short-term loan from a major bank due to the fact that the absolute return is not high. In the example above, the $35 in revenue for the bank is quite small. For this reason, many cash-advance and payday lenders have stepped into the void, offering short-term loans at very high APRs. These firms also specialize in lending to those with bad or no credit.
Another form of repayment for a 90-day loan is the discount. These loans deduct the interest and fee payments at the time the loan is issued, but the borrower must still repay the full amount. For example, if the loan is $1,000 with a 14 percent APR over 90 days, the borrower would received $965, but would be responsible for repaying $1,000. This makes sense for short-term coupon notes because there is only one payment at a fixed rate.