What is a differentiated loan payment: description, calculation procedure, payment terms

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

The popularity of loans among the population is beyond doubt. Loans are taken for different purposes. Someone buys real estate, someone - a vehicle. There are also those who buy the latest model iPhone with borrowed funds and pay off the loan for it for a long time. However, this is not about the purpose of obtaining a loan, but about the methods of its repayment. Not all clients, when receiving a monthly payment schedule, are interested in what types of loan payments exist. Does the bank offer them a differentiated or other method of repayment? Let's try to increase financial literacy by understanding these issues.

Description

A differentiated loan payment is a method of repaying a loan in which the borrower pays the bulk of the debt in equalparts throughout the entire period of the loan. At the same time, interest is charged only on the balance of the debt, so with this method of payment, you can observe a monthly reduction in payments. Some features follow from this definition, which we will discuss below.

Features

Knowing what a differentiated loan payment is, you can guess that the first payment will be the largest for the entire period. Already from the second month, the amount of payments will begin to decrease.

That is why the borrower who chooses this method of debt repayment needs to calculate his own budget in detail, laying down a certain reserve of funds. If this is not done, large loan payments may seem overwhelming.

However, they will gradually decrease, reducing the burden of borrowing money. This gives certain advantages. Indeed, in the end, thanks to this approach, it is possible to reduce the total amount of overpayments on the loan in case of its early repayment.

Relevance

For the same reason, banks rarely offer loan repayment by differentiated payments. This is due to the fact that this way of returning the loan reduces their income. Similar conditions are sometimes offered to mortgage borrowers and much less often to those customers who apply for a consumer loan. The general rule is that borrowers can get differentiated payments on a bank loan by choosing a long repayment period.

You need to understand that it is rarely possible to find a bank that agrees todifferentiated payments. Such a scheme is unprofitable for the credit institution itself. After all, its main goal is to make as much profit as possible. Knowing what a differentiated loan payment is, you must understand that this method of repaying a loan is contrary to the purpose of the bank itself. For the same reason, a similar method of mutual settlements can be provided to customers who take a loan for a long period.

Calculation procedure

This item will be of interest to the most fastidious readers. The calculation of differentiated loan payments is relatively simple.

So, first of all, the total amount of debt must be divided into equal parts, depending on the period for which the loan was issued. Accordingly, if the loan to the client is granted for three years, the total amount must be divided by thirty-six. This is the number of months during which regular payments will have to be made in order to pay off the debt to the bank.

You need to understand that each payment consists of interest and an amount that partially covers the principal. Therefore, the accrued interest on the balance of the loan will also be added to the amount received earlier. Gradually, the residual amount of the loan will decrease, therefore, with a differentiated payment, its size will decrease every month.

This means that at the very beginning of payments, the client will have to bear a large financial burden, which will gradually decrease. Accordingly, monthly payments will bedecrease, causing less impact on the borrower's budget.

You can use a special calculator for preliminary calculation of differentiated loan payments. An interesting fact is that you should not completely and completely trust the calculators on the websites of the banks themselves. Often the information in them differs from the actual conditions that are offered to customers.

Alternative

Most Russian banks provide their customers with an exclusively annuity method of repaying a loan. In this case, throughout the entire period of the loan, customers pay the bank the same amount every month. That is, both in the first and in the tenth month he will pay the same conditional thousand rubles.

Now you know what a differentiated loan payment is, and you understand that with this form of payment, each month the amounts that the client pays to pay off his own debt are different.

It might seem that an annuity payment is more convenient. After all, it is enough just to remember the required amount once and not to be mistaken in the future, making the next payment. In addition, with fixed payments, it is easier to calculate your own budget, putting in it the same amount to pay off debt every month.

However, if you approach the issue rationally and clearly know what a differentiated loan payment is, you can come to the conclusion that this method is more rational. Because in this case, the client gets the opportunity to reduce their own overpayments.

Payout conditions

With a differentiated loan repayment, the monthly payment is gradually reduced, leaving more and more free funds in the borrower's budget. Particularly noticeable is the reduction in the burden of repaying a long-term loan. The amount of monthly contributions to the bank over time is reduced by about half. Agree, the difference is palpable.

Due to the uniform repayment of the main debt, it is possible to reduce the total amount of the overpayment. After all, every month the bank recalculates interest depending on the amount of outstanding debt. Accordingly, the lower it is, the more the interest that has to be paid in favor of the bank for the use of funds is reduced.

Those who pay mortgages with differentiated payments manage to reduce the amount of annual insurance, which is mandatory if real estate is pledged. This is due to the fact that the amount of insurance coverage is calculated depending on the amount of outstanding debt.

Result

If you plan to get a loan with differentiated payments, calculate your own costs. The calculator on the bank's website may not provide the most reliable calculations. However, taking into account commissions and insurance, the amount may be slightly different. In addition, banks also know how to count and are well aware that with a differentiated method of repaying a loan, their profits will noticeably decrease. That is why not every credit institution is ready to provide its customers with suchconditions.