Bank loans have become so affordable and popular that now you will not surprise anyone. However, despite its wide popularity, few have minimal knowledge in the field of cash loans. For example, even regular customers of banks do not always know what an annuity payment is and differentiated, the difference between these two terms is even less obvious. Let's fix the situation and find out what it is, understand the features of each method of paying off debts.
Differentiated payments
For many customers who know how to calculate their own expenses, this method of debt repayment is often becoming preferred. And there are many reasons for this.
The main feature of differentiated payments is that their size decreases every month. This is due to the fact that the amount consists of two parts. The first goes to repay the principal, and the second to pay interest on the balance. As a result, this allows the client to significantly overpay for early repayment of the debt.
What is important to know?
Differentiated payments result in increased credit load in the first months or years. This is very important to consider when soundly assessing your own capabilities. If the financial load turns out to be excessive for the client, he will not be able to make payments on time, there will be delays which, under the terms of the contract, allow the bank to introduce penalties. In addition, if you fail to make payments on time, in the future this will affect the ability to get a new loan or its conditions, which may not be the most profitable.
Even if you are completely satisfied with the differential payment on the loan, it is not enough to use a similar payment method. The problem is that cost reduction for a potential client results in a loss of profit for the bank itself. By issuing the same amount on credit, an organization can earn more with an annuity payment than with a differentiated payment. That is why only a small number of Russian banks offer a similar loan repayment system. You have to spend a lot of time, effort and patience to find organizations with favorable conditions for you.
Annuity payment and differentiated: difference
If you are already familiar with the second type of repayment of bank debt, then the first should be discussed in more detail.
So what is an annuity payment? Keep in mind that it is also called classic for the reason that the vast majority of banks draw up a payment schedule for customers based on this particular method.
So, annuity involves fixed payments throughout the entire loan repayment period. First, most of the payment is interest accrued for the use of cash. However, gradually their share in the total payment is reduced, giving way to the payment of the main debt.
This is the main difference when comparing annuity and differentiated loan repayment systems. In addition, in the first case, the overpayment is greater. This is especially noticeable with long-term lending. For example, when paying a mortgage.
An annuity payment can be beneficial to the client if the loan is issued for a period of less than five years.
Calculation formula
Those potential customers who are interested in a differential payment on a loan will find it useful to know how to calculate the amount of monthly payments. This will make it possible even before contacting the bank to assess the approximate level of debt burden and assess the feasibility of such a method of repaying a loan.
So, the differential payment formula is incredibly simple. It includes only a few components. That is why a potential client can independently use it and calculate at least approximately his own credit load.
Payment = Interest + Fixed part.
Let's take a closer look at each component in order to learn how to use it correctly.
How to use the formula?
To know the size of the payment, you need to know two components.
- The fixed part is the amount of the loan without interest.
- Interest is the amount accrued for the use of cash. It depends on the rate set by the bank, the loan period and the loan amount.
Unlike the fixed part, the exact size of the interest will not be immediately known. They are recalculated monthly depending on the remaining amount of debt. Differentiated payments are gradually reduced precisely by reducing the percentage. That is why for each month it has to be calculated according to a separate formula.
Interest = (Rate * Balance) / 100%
This means that in the first month in the form of interest you can pay a conditional thousand rubles to the bank, and by the time the loan is repaid, their size will already be 500 conditional rubles or even less, which may be two or more times less than the originally accrued interest. This is a very important nuance for everyone who calculates a differential payment.
Credibility
As a rule, the exact amount of repayments becomes known to a potential client only by directly applying for a loan at a bank. This is due to the fact that it is almost impossible to know in advance the exact interest rate that you will be offered. In addition, banks often add insurance policy payments or other additional expenses to the principal amount.
For the same reason, you should not completely rely on information that can be obtained using a loan calculator posted on the website of a credit institution. In addition, banks with differentiated payments rarely work. As noted above, an annuity payment scheme is much more profitable for them.
Benefits
- Reduction of overpayments. This is the most important and at the same time the most significant advantage that a differentiated debt repayment scheme provides. Payment is calculated quite simply, so the client can completely control his own debt, not allowing the bank to act in bad faith with him. From the first month, the main efforts are directed towards the payment of the main debt, which in the end allows to reduce it at a noticeable pace. And along with the debt, the amount of interest accrued monthly is also reduced.
- Long-term lending. Differentiated payment is especially beneficial for the category of potential customers who will pay the loan over a long period of time. For example, for 10 years or more. In this case, the difference in overpayment will be especially noticeable. The overpayment will be significantly less than with the banks' preferred annuity method of repaying loans.
- Reduction of payments. With each month, the amount that must be paid to repay the loan will decrease. If you initially focus on the maximum amount of payments when drawing up your own budget, a decrease in the loan load will allow you to repay the loan more quickly or simply become a pleasant surprise, allowing you to have more free funds at your disposal.
Is everything so perfect?
However, a differentiated payment is not so perfect. For example, if a client is set for early repayment regardless of the payment schedule, such a loan will not provide him with significant advantages. At the same time, getting it is much more difficult than the annuity option that is familiar to most banks.