How to repay a loan – classic and annuity repayment schemes
Loans from banks for various purposes are the norm of our lives. And how to repay a loan is a question that concerns many. There are two well – known loan repayment schemes that are widely used: classic and annuity.
A classic or differentiated loan repayment scheme is based on the fact that the total debt is divided by the number of months during which you use the loan product. Interest on the loan is calculated based on the actual balance of the debt. This means that the total amount of the monthly payment until the loan repayment period expires will be constantly decreasing.
An annuity loan repayment scheme is primarily associated with the fact that the monthly loan payment is fixed. It does not change until the expiration of the use of the loan product. And loan repayment is calculated according to a special formula, which includes a constantly changing ratio of interest rate, loan amount and the term for which it is issued.
When choosing a classic and annuity scheme, one should take into account not only its amount, but also the period in which you expect to pay off the debt. The classic loan repayment scheme is most in demand by borrowers who plan to repay the loan ahead of schedule, with an overpayment lower than with the annuity scheme. An annuity loan repayment scheme, in turn, is preferred by bank customers who do not have the ability to pay the first, larger payments according to the classical scheme, and who are counting on long-term loan repayment.
Both schemes have their pros and cons. And here the topic of overpayment for using a loan product comes to the fore. The application of the classical scheme makes it easy to determine the balance of the loan debt. Can this be said of the annuity scheme? The fact is that banks in the loan repayment schedule usually do not decrypt annuity payments in detail, and borrowers, therefore, do not always know the exact balance of their debt.
The position of the banks themselves, which are trying to switch to the maximum use of the annuity scheme, is also interesting in this matter. Annuity long-term payments are very beneficial to them. But can this be said about customers?
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