Customers who view bank offers usually pay attention to parameters such as interest rate, bank commission and margin. Few, however, are interested in how to repay the loan. Usually two options are available: equal and decreasing installments. It turns out that the type of selected installments has an impact on the final cost of the loan, so it’s worth thinking about your choice.
If we are dealing with a short-term loan for a small amount, then the type of installment does not matter. However, if the loan is taken out for a high amount and for many years, then the difference between the types of installments can reach even tens of thousands of dollars. It is worth remembering that each installment consists of capital (return of borrowed amount) and interest (bank profit).
You can find more about short-term loans and loans in the article Total cost of payday loan – which affects its amount.
When do equal installments pay and when do they decrease?
An equal installment is one whose amount does not change throughout the loan period. In turn, the installment decreasing at the beginning of the repayment is high and decreases with each passing month. In the case of equal installments, little capital and a lot of interest are paid back at the beginning. Over time, the capital part increases and the interest part decreases. In the case of decreasing installments, the repayment covers the same amount of capital, which decreases, which means that the interest part decreases.
We will learn about the installment cost in a given month from the mortgage schedule.
The choice of equal installments pays off for people who care about fixed amounts throughout the loan period. Another advantage is that people with limited creditworthiness can find it easier to get a loan with equal installments (the first installment is much smaller compared to the decreasing plan). The decreasing option is good for people with greater creditworthiness who care about considerable savings. After the initial period of higher installments, they are getting smaller. Ultimately, such a loan is cheaper compared to a loan repaid in equal installments.
How exactly to calculate the installment amount?
When comparing bank offers, it is worth using the help of facilities such as a special loan installment calculator. On the Internet you can find a lot of pages with such practical tools. Just enter the loan amount, loan period, interest rate and other parameters to calculate its installment. Modern calculators allow for effective calculation of equal and decreasing installments. Thanks to the help of such practical websites, it is possible to quickly determine whether in the case of a given loan for a specific amount, an equal or decreasing repayment will be a better and more profitable solution. So let’s browse the Internet resources with the help of a search engine and find such practical calculators. You can find out more about the pros and cons of equal and decreasing installments in this article.