Many people are afraid to take out a loan due to high interest rates. However, it should be borne in mind that without a reserve of knowledge in this area, even low interest on the loan can lead to serious losses.
First, let's look at what interest calculation schemes are. It is customary to distinguish two main ones: standard (classical) and annuity. Both include the body of the loan and the interest themselves.
In the standard scheme, interest is constantly accrued on the loan balance. In fact, at the same time, the interest on the loan and its body are reduced.
As for the annuity scheme, it is somewhat more complicated than the usual one. In this case, the borrower pays a fixed amount monthly. And the bottom line is that in the first half of the term most of this amount is interest, and in the end - the body of the loan.
Which of these schemes is more profitable? Let's consider them in practice. And the first criterion that you should pay attention to is the possibility of early repayment. For example, this month you need to pay $ 800 ($ 500 - the body, and $ 300 - interest on the loan). If we are talking about the standard scheme, then by depositing not $ 800, but $ 900 into the account, next month you will be able to pay $ 100 less. Having the desire and opportunity, you can repay the loan much earlier .
If you have chosen an annuity, then the opportunity to repay a loan ahead of schedule is also present. However, this does not help you get rid of the need to pay interest. After all, you will have to pay the bulk of them in the first months. Plus, there may be problems associated with the fact that banks are not particularly willing to mess with the recount of the scheme.
The next point that you should pay attention to when studying interest on the loan and their profitability is commission. You should not rely on the fact that banks offering higher rates practically do not take money for services. Very often, the availability of various commissions is known after the conclusion of the contract. Of course, if even before registration you ask a direct question about this to employees, you will receive an honest answer. However, they strive to focus on the advantages of the proposal and divert attention from its shortcomings. Including from the commissions. From this point of view, it is more profitable to pay a large one-time commission right away than to allow the bank to draw interest from you for many years.
Also, be sure to check the period during which monthly payments should be made. For example, if the grace period under the terms of the bank is 45 days, this does not always mean that you can make the next payment within 45 days after the previous one. It is likely that this refers to the need to pay until the 15th of each month. Then it will not matter if you took a loan on the 1st or 31st - until the 15th you have to make a payment.
Note! The interest on the loan earns the bank a profit. That is why the repayment of interest is in the first place for him. That is, if you did not have enough money to make a full monthly payment, interest on loans will be paid first, and already the rest of the money will go to reduce the body. That is, the body will remain “hanging” in the same condition, and the bank will continue to charge interest and fines on it.
Carefully read the terms of the loan agreement, and then you can avoid unnecessary expenses and worries!