Unfortunately, not all bank customers using various loans and installments understand the difference between annuity and differential loan payments. Therefore, when a person is offered to make a choice of a scheme when making another transaction, he relies on the opinion of a bank employee or (even worse) he acts at random. As a result, the borrower often simply does not understand what exactly he pays, why the amount, where he comes from overdue debt.
Annuity settlement scheme
If a person draws up an installment plan for a purchase of goods (consumer credit) at a shopping center or supermarket, he is unlikely to be offered differential payments . The fact is that the annuity repayment scheme allows you not even to create a schedule for the contract. Payments for the entire loan period are calculated according to a special formula so that they are equal. Only the last amount can differ, both in a large and a smaller direction.
This scheme is used by banks due to the fact that the servicing of an annuity loan does not require additional resources, everything happens automatically. The client knows what his payment is and makes monthly repayments. If we consider this scheme from the perspective of the borrower, then it is considered less profitable than a differentiated payment on the loan. In fact, if interest is accrued on the residual amount of the debt (and this is possible regardless of the chosen schedule), then you can not talk about the financial benefits of one or another option. It is just that with an annuity repayment of a debt by a client, the loan amount is repaid more slowly, therefore, the final overpayment will be greater. On the other hand, it is much easier for the borrower to pay with the bank, clearly knowing the monthly payment amount. Moreover, if the contract provides for the early
fulfillment of obligations, no one bothers him to pay more than indicated in the schedule.
Differentiated circuit
It is also called classic. Lending experts, as a rule, recommend that customers choose it. The fact is that the calculation of differential payments on a loan is carried out more simply and transparently. Each borrower, using a conventional calculator, can do it on his own. In this case, it is the loan body that is divided into equal amounts (by the number of loan months), and interest is accrued on the remaining debt. Thus, a graph that decreases in time is obtained. A differentiated loan payment each month will be different from the previous one. This is its main drawback. That is, the client, before depositing money into the cash desk or terminal, must either check his schedule or check with the specialist.
A differentiated loan payment is not entirely convenient in that the first installments are significantly different. And this means that this scheme may not be affordable for the borrower.
How to make a choice
People who do not have the time and opportunity to go to the bank each time to clarify their payment are likely to use an annuity. And if you repay it ahead of schedule, then the overpayment will not be so high. Those borrowers who are used to strictly following the schedule will undoubtedly have a better repayment scheme. Of course, if they are not afraid of the first payments. So both the differentiated schedule and the annuity have their positive and negative points.