How Does an Installement-Loan Work?
When most people use the word loan in casual conversation, they are typically referring to an installement-loan. Every loan agreement is different and its very important to read the fine print on your agreement before signing it, but there are some common practices for loans of this type that we will discuss today.
1) An installement-loan is typically structured as follows. An amount is borrowed, say for a car, there is a certain interest rate that is applied to the loan, typically this is expressed as the anual percentage rate. The money owed is then divided into a mutually agreed upon number of monthly payments, 36, 48 , etc. The installments owed each month are arranged so that the following formula applies (roughly) Total Loan Repayment = Number of payments * Payment amount/Month.
2) The payment amount owed each month has it’s own calculation to make sure the loan is paid off in full at the end of the last installment. Monthly Amount Due = Principle Payment + Interest. Interest is typically applied at the rate of Current Amount Owed * Interest Rate / 12 each month.
So what happens if you pay off the money you owe faster than the required payments? You reduce the principle remaining on the loan, this in turn reduces the amount of interest applied each month which means that the amount of principle your payments pay off each month is higher. This will eventually result in fewer than expected total payments on your installement loan. It can often be a very good idea to pay off your debts as quickly as possible to avoid paying excessive amounts of interest. You must weigh this against other potential opportunities to spend your money on other things.
For more information, go to installement-loan at https://www.creditnowusa.com/Installment-Loans
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