Borrowing a loan is one thing, but paying it off is something else entirely. Here we go through tips and advice on how it should be done. There is often a lot of talk about which loan type is the cheapest.
What we can at least make clear is the following: Obviously, it pays to repay the loan the day after you raised it.
Because then, interest expenses will be the lowest.
Remember that interest expenses are always a function of how big the loan is
The interest is calculated from the loan amount remaining at all times. Therefore, it will always be cheapest to always have a loan amount, which is as small as possible. Of course, no one does the repayment of the loan the day after the loan is taken out. At least not with a mortgage. Of course, you have borrowed because you need the money.
Still, it is important that you are aware of the point. All discussions about the repayment form are, of course, an avenue of how fast you repay the loan.
There is probably no definitive answer as to what is the right form of repayment
The right thing is to tailor a repayment plan to each individual’s finances. There are many conditions that come into the picture. Some of them are, for example, what you have in disposable income, other loans, future loan needs, etc.
What is often the first question that arises is whether to choose serial loans or annuity loans. Then you should know that in a serial loan, equal repayments are paid throughout the loan period, in addition, comes the interest rates that fall outwards over the loan period because the loan amount is gradually reduced.
In an annuity loan, on the other hand, a formula is calculated which means that the sum of repayments and interest is constant throughout the loan period (assuming that the interest rate is constant). If the loan interest rate and the repayment period are equal, you will always have paid the least interest with a serial loan.
The explanation is that you repay the loan faster. In short, you borrow less money over a shorter period of time than if you choose the annuity loan.
Remember that a serial loan will always give a lower total amount than an annuity loan
The reason for this is simply that you pay more installments in the beginning, and therefore have a smaller loan on average than if you have an annuity loan. Of course, less will pay off on a smaller loan, or one with shorter down payment.
All smart variants are basically just about paying off the loan faster in one way or another. We will not present any fixed solutions. It is and remains the number of installment dollars you pay that is the deciding factor
Here’s another great tip for you: Consider how much repayment it makes sense to pay just for you. The fact that it pays to pay as much as possible is fine, but somewhere there is a limit. For example, if you can’t afford to pay the installments, you can’t opt for a serial loan with a 10-year repayment period.
Earlier we mentioned here that you have to see this in the context of your financial situation. And this is true in most loan situations, so you have to keep that in mind as well. Nevertheless, it is also important that you maintain what can be called management options in your personal finances. To do this, for most people, it will be worthwhile to have a savings plan next to the down payment plan. The loan can then in addition Assessment criteria for Mortgages and Loans in general – There is always a lot to keep track of when taking out a loan.