Loan interest: how not to let yourself cash in?

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

Many people are afraid to take a loan because of high interest rates. However, it should be borne in mind that without a stock of knowledge in this area, even low interest on a loan can lead to serious losses.

First, let's look at what interest schemes exist. It is customary to distinguish two main ones: standard (classical) and annuity. Both include the body of the loan and the interest itself.

Under the standard scheme, interest is constantly charged on the balance of the loan. In fact, both the interest on the loan and its body are reduced at the same time.

As for the annuity scheme, it is somewhat more complicated than usual. In this case, the borrower pays a fixed amount every month. And the bottom line is that in the first half of the term, most of this amount is interest, and at the end - the body of the loan.

Which of these schemes is more profitable? Let's consider them in practice. And the first criterion that you should pay attention to is the possibility of early repayment. For example, this month you need to pay $800 ($500 - body, and $300 -loan interest). If we are talking about the standard scheme, then by depositing not $800, but $900, the next month you will be able to pay $100 less. With the desire and opportunity, you can repay the loan much earlier.

If you have chosen an annuity, then the opportunity to repay the loan ahead of time is also present. However, this will not help you get rid of the need to pay interest. After all, you will have to pay the bulk of them in the first months. Plus, there may be problems associated with the fact that banks are not particularly willing to fiddle with the recalculation of the scheme.

The next item you should pay attention to when studying loan interest and its profitability is commissions. You should not count on the fact that banks offering higher rates practically do not charge money for service. Very often, the presence of various commissions will be known after the conclusion of the contract. Of course, if even before registration you ask a direct question about this to employees, you will receive an honest answer. However, they tend to focus on the advantages of the proposal and divert attention from its disadvantages. Including commissions. From this point of view, it is more profitable to immediately pay a large one-time commission than to allow the bank to extract interest from you for many years.

Also be sure to check how long you need to make your monthly payments. For example, if the grace period under the terms of the bank is 45 days, this does not always mean that you can make the next paymentwithin 45 days after the previous one. It is likely that the payment is due by the 15th of each month. Then it will not matter whether you took out a loan on the 1st or 31st - you must make a payment before the 15th.

Pay attention! The accrual of interest on a loan brings profit to the bank. That is why the repayment of interest is in the first place for him. That is, if you do not have enough money to make a full monthly payment, interest on loans will be paid first, and the rest of the money will go to reduce the body. That is, the body will remain “hanging” in the same state, and the bank will continue to charge pen alties and fines on it.

Carefully read the terms of the loan agreement, and then you can avoid unnecessary expenses and worries!