| When deciding on your repayment
schedule you
should always remember the longer you take to
payback the principal the higher your total interest
payment will become:
"Equal" Payments
This type of loan
requires you to pay the same amount each period
(monthly or quarterly) for a specified number
of periods. Part of each payment goes toward
interest and the rest goes toward principal.
After the specified number of periods you
will have paid back the entire loan plus all
interest.
"Equal" Payment and a Final Balloon
Payment
This type of loan requires you to make
equal monthly payments of principal and interest
for a relatively short period of time. After you
make the last instalment payment, you must pay
the balance in one payment, called a balloon payment.
Some lenders will give you the option to refinance
the loan to help you stretch out the final balloon
payment. This type of loan offers definite benefits
to you. Because of the lower monthly payments
during the course of the loan, you can keep more
cash available for other needs. Of course, when
you are thinking about those nice low payments,
don't forget the big balloon payment waiting around
the corner.
Interest-Only Payments and a Final Balloon Payment
With this type of loan, your regular payments
cover only interest. The principal stays the same.
At the end of the loan term, you must make a balloon
payment to cover the entire principal and any
remaining interest. The obvious advantages of
this arrangement are the low periodic payments.
But over the long term, you will pay more interest
because you are borrowing the principal for a
longer time.
Single Payment of Principal and Interest
If your
lender agrees, you can promise to pay off the
loan all at once at a specified date. This payment
includes the entire principal amount and the accrued
interest. Borrowing money on these terms is best
for a short-term loan.
Equal Principal Payments
This type of loan requires
you to pay the same amount of principal each period
for a specified number of periods. The total payment
for each period will be variable (and should decline)
as you pay interest only on the outstanding principal
at the beginning of the period. Borrowing money
on these terms requires larger payments in the
beginning of the loan.
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Loans click here.
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