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Loans: amortization and repayment methods

Loans: amortization and repayment methods

The 3 things to know: an elucidation on papierkugel.org

  • What it is: it is the loan repayment plan
  • How it works: it can be at a fixed rate or at a variable rate
  • Compare and choose from the amortization schedules with the rate best suited to you

When a personal payday loan is requested, we undertake to return the sum obtained by the Bank through a periodic repayment of the installments, as established by the contract. To know the details of the repayment you need to calculate the amortization schedule. The latter summarizes in detail all the characteristics of the loan, starting from the number of total installments to be supported, defining their composition. The value of each installment is given by a share of capital (lower in the initial phase) and by a share of interest expense (higher in the initial phase).

The amortization plan: what is it?

The amortization plan: what is it?

The loan provides a generally fixed interest rate – expressed by the TAN (nominal annual rate) and the APR. (annual percentage rate). The APR expresses as a percentage the total cost of the loan, including interest, charges and ancillary expenses.

When choosing a loan, always check the APR: in this way you can compare all the solutions and find the most convenient one.

The loan is repaid according to an amortization plan that allows the expiration dates, the number of total installments, their composition and, therefore, the amount of the residual debt at each maturity. Italian banks use the so-called French amortization plan which provides for constant installments (if the rate is fixed) consisting of a decreasing interest rate and a growing principal amount as the repayment is made over time. This allows banks or financial companies to protect themselves, as most of the total interest is paid with the first installments.

Repayment of the loan: the methods

Repayment of the loan: the methods

The fixed rate is normally applied to personal payday loans, but there are also variable rate offers on the market. If the loan is at a fixed rate, the repayment is made by paying constant installments according to the pre-established amortization schedule. Generally the repayment method is the direct monthly debit on the applicant’s current account ( RID procedure), but there is also the possibility of payment by postal payment slip. In all cases, the RID procedure is preferable for the punctuality guarantees it offers. Loans at variable rates are repaid in the same way but with installments that may vary due to fluctuations in the Bankate (the parameter that allows the calculation of the variable rate applied to the customer) which can change the amount of the interest corresponding to up or down.

If you want to know for sure how much you will pay each month to repay the loan, choose a fixed rate loan.