When it becomes necessary to obtain a loan, the first thing that a consumer pays attention to is a loan rate or, more simply, interest. And here we often face a difficult choice, because banks often offer not only different interest rates, but also a different method of repayment.
Rates and payments - what they are
There are several types and forms of credit rates, significantly different from each other. It is quite difficult for a person who is not dedicated to the intricacies of the work of financial organizations to understand this issue. Nevertheless, it is not so difficult to independently calculate the loan payment and the amount of overpayment and choose the most suitable repayment option. Of course, many banks offer to use the help of a loan calculator, but it is much more interesting to study the issue yourself.
First you need to know that interest rates are fixed and variable. The first option is initially prescribed in the contract and does not change until the expiration of its validity, and the second involves a periodic change in the interest rate depending on various factors.
It is rather difficult to calculate interest payments of a variable type on your own, since it is necessary to take into account too many factors, so we will dwell in more detail on the constant percentages.
Annuity
This is the same monthly sum of contributions under a loan agreement. This is one of the most popular ways to repay a loan today - for many borrowers it turns out to be convenient to make monthly payments of the same size. This allows you to clearly plan your family budget, taking into account the payment of a loan.
Interest payments annuity type include two components:
- the amount received to pay the interest themselves;
- funds going to repay the loan body.
After some time, the ratio of these components gradually changes - the percentage component decreases, and the amount allocated to pay off the main debt increases. The total payment amount remains unchanged.
Thus, annuity payments result in a slightly larger overall overpayment. This is because at first the amount of the principal debt decreases slightly, and interest is accrued on the outstanding balance. Therefore, at the beginning the main share of interest is paid. And only then does the main repayment of the loan body occur, which is especially noticeable when trying to repay early.
Calculation Example
For example, let's calculate the monthly interest payments on a loan in the amount of 600 thousand rubles for 3 years at 24% per annum.
First you need to calculate the
interest rate on the loan per month (P), for which we divide the annual interest rate by the number of months in the year (the result, of course, divide by 100, because this is the percentage):
P = 24: 12: 100 = 0.02%
Now calculate the annuity ratio (A):
A = P x (1 + P) N: ((1 + P) N-1)
P - rate% per month (in hundredths).
N - the number of repayment periods (for how many months a loan was taken).
A = 0.02 x (1 + 0.02) 36: ((1 + 0.02) 36 - 1) = 0.02056
Next, we need the formula for calculating the annuity payment:
M = K x A
K is the total loan amount.
A - annuity ratio.
M = 600,000 x 0.02056 = 12,336 rubles.
Thus, if you want to take out a loan on the proposed terms, then you will have to pay 12 thousand 336 rubles for 36 months.
Prepayment
Despite the fact that the loan payment schedule in this case is stable and accurately predictable, many clients may wish to fulfill their obligations as quickly as possible. It would seem that banking institutions should welcome the premature repayment of debt, because in this way the risk of default is greatly reduced, but in practice this is far from the case. In case of early repayment of the loan, the bank loses a part of the interest due to it, therefore not every loan agreement provides for such a possibility, so this point should be discussed even before the conclusion of the agreement.
To change the schedule of annuity payments, it is necessary to notify the employee of the credit institution and make a cash amount in excess of the usual payment. Based on this, the bank employee will draw up a new schedule for you, but it should be taken into account that the calculation will be performed in such a way that the fixed interest payment is reduced and their number remains unchanged.
Benefits of Annuity Payment
Some may have the opinion that annuity repayment of a payment is absolutely not profitable, while in some situations it may turn out to be much better than differential. Especially when you have to pay interest on the mortgage - payments are quite long in time and considerable in amount. The advantages in this case are obvious:
- you can get a loan even with a low income;
- small amounts of payment made can reduce the burden on the family budget;
- over time, the high cost of the loan is felt less, since inflation laws come into force.
Differentiated payment
No less popular in Russia is such a loan repayment scheme, in which interest payments are gradually reduced by the end of the loan term. Such a system is called differentiated and also consists of two parts:
- fixed - the amount allocated to repay the main loan;
- decreasing - interest on the loan accrued on the outstanding balance;
As a result of the fact that the amount of debt is repaid in the first place, it is constantly decreasing, which means that the accrued interest also decreases. Thus, your monthly loan payment will no longer be a fixed amount, but will decrease from payment to payment.
It is worth knowing that if you choose a loan agreement with differentiated payments, the loan rate will be significantly higher, which means that you will have to confirm a monthly income sufficient to repay the loan.
Count
Spend some time calculating differentiated interest payments. The formula for calculating them is quite simple.
P = K / N
P - payment.
K - loan amount.
N is the number of months.
And to calculate the percentage, we use the formula:
% = O x G% / 12
% - the amount of interest.
O - balance of outstanding debt.
G% - annual interest rate.
To get the final payment amount, put it all together. Thus, by repeating these calculations the required number of times, you can independently draw up a debt repayment schedule.
How not to make a mistake in choosing
Before finally deciding which bank to choose for concluding a
loan agreement, it’s worthwhile to clarify the following aspects for yourself:
- Soberly evaluate your monthly income. When applying for a loan with a differentiated repayment system, the bank will evaluate your income by correlating it with the amount of the first payment, and in this case it is the largest.
- Think in advance about the likelihood of premature repayment - for annuity payments this makes sense only at the beginning of the repayment period, near the end the interest will be paid and it will not be possible to reduce the total amount of the overpayment. So if you plan to repay the loan ahead of schedule, it is better to get a loan with a differentiated repayment method.
- Enjoy the convenience of repayment. With consumer lending for household needs, you probably will want to quickly say goodbye to debt, but differentiated interest on a mortgage may turn out to be unbearable.
Conclusion
So, let's summarize again. A differentiated method of refund should be chosen by those who:
- prepares a loan for a long time and plans to take a large amount;
- has doubts about a long stable financial situation, but at the time of obtaining a loan he is quite confident in his abilities;
- wants to minimize the amount of overpayment on the loan;
- plans to pay the debt as soon as possible.
Fixed interest payment - the best choice for:
- borrowers who are not able at first to make large sums of money;
- customers whose average monthly income does not allow making down payments for obtaining a loan with a differentiated schedule;
- people who borrowed little and for a short time;
- customers seeking to plan a budget, counting on a fixed amount of payment on the loan.
As soon as the bank offers you a choice, carefully study both options, soberly assess your capabilities. Ask the bank staff to explain to you how future payments will be calculated. You can also print both options and carefully study them in a relaxed home environment, weigh the pros and cons. Then you can be firmly confident in your financial well-being.