• About
  • Advertise
  • Careers
  • Contact Us
Wednesday, June 29, 2022
Wednesday, June 29, 2022
Finance In U.S
  • Cryptocurrency
  • Credit Score
  • Insurance
  • Investments
  • Loans
  • Mortgage
  • Online Applications
  • Real Estates
No Result
View All Result
  • Cryptocurrency
  • Credit Score
  • Insurance
  • Investments
  • Loans
  • Mortgage
  • Online Applications
  • Real Estates
No Result
View All Result
Finance In U.S
No Result
View All Result
Home Loans

Amortizing Loan and Its Types

by finance
November 22, 2021
in Loans
4 min read
0
Amortizing loan
0
SHARES
0
VIEWS
Share on FacebookShare on Twitter

Amortizing loan is described as a loan that is paid on monthly installment basis. With amortized loan, the borrower set a schedule and period to make payments on both the principal and interest. The interest charge is paid off first within that period, then the remaining amount is worked towards reducing the principal amount.

It is considered that, while the interest charge payments for an amortization loan decreases, the principal amount increases.

Amortization schedule is determined as the situation at which the interest decreases. It shows the exact amount one pays each month towards the interest and what goes into reduction the principal.

The amortization system is different that one has borrower has to first pay part of the interest charge on the loan before aiming towards reducing the principal amount.

Table of Contents

  • Types of Amortizing Loan
    • Auto Loans
    • Student Loan
    • Home loans
    • Personal loans
  • How to calculate interest owed on an amortizing loan

Types of Amortizing Loan

Most Loans that are paid on installation basis are considered as amortised loan. Below are the types of amortisation loan;

Auto Loans

When someone borrows money to finance the purchase of a car or vehicle, it is termed as an auto loan. The type of loan are used to buy either new or used cars which will attract an interest charge. Payment of auto loans is done on monthly installment basis.

Cars buyers have the opportunity to chose between two options when it’s comes to auto loans. First, you can apply from a bank or lender who will take into consideration certain requirements and eligibility.

RELATED POSTS:  Midwest Loan Services-Payment Methods

Secondly, you can apply from a car dealership who tends to sell the car for you on credit with the knowledge of paying on monthly installation basis.

ALSO: Best Payday Loans Near Me

Student Loan

This form of loan is also recognized as an amortized loan due to its payment system. Student loan repayment is done on monthly installment basis. Student loans are provided by the federal government in the US to students who finance their education. Under this student loan, there are four different types;

  • Direct subsidized loans are available to undergraduate students with need financial support to cover the cost of their education.
  • Direct Unsubsidized Loans are not provided based on financial need of the student but rather the school decides the amount you can borrow. Both Undergraduate and graduate students can seek for this loan.
  • Direct PLUS loans are for certain category of people such as graduate or professional students, known as the Grad PLUS loan, or parents of dependent undergraduate students, known as the Parent PLUS loan.
  • A direct consolidation loan is a type of loan that borrower has the opportunity to put together numerousfederal loans into one loan with a fixed interest rate.

Home loans

With home loans, lender provide a borrower the opportunity to borrow money to by a house, apartment or property. It is also termed as a mortgage loan where the payment will be spread across several years or 10, 15 or 30 years.

Personal loans

Personal loans are also another form of amortised loans because the borrower gets a loan from a bank or credit union and make payment on monthly basis with interest.

RELATED POSTS:  California Small Business Loan Guarantee Program

How to calculate interest owed on an amortizing loan

Every loan attracts an interest that will be paid in addition to the principal amount. To know the interest you are supposed to pay of this kind of loan, the lender will multiple the the interest rate by the current loan. Then, the current amount will be divided by the number of months and added to interest to arrive at the monthly payment that will be made towards reduction the principal amount.

In calculating the interest owed by a borrower, the lender takes the current loan balance and multiple it by the given interest rate.

ALSO: The 25 Best Financial Blogs – Full List 2021

Example

You are borrowed a $10,000 loan and have agreed to pay in 12 months at an interest rate of 2%. Your first payment will be $1200 as calculated below

$10,000 x 0.02 = $200

$10,000/10 months = $1,000

$200 + $1000 = $1,200 (first month payment)

After the first payment, the reminding balance of the loan will be $9000.

$9,000 x 0.02 = $180

$10,000/10 months = $1,000
$1000 + $180 = $1,180 (second payment)

Remaining balance will be $8,000.

$8,000 x 0.02 = $160

$10000/10 = $1,000
$1,000 + $160 = $1,160 (third payment)

It follows this trend till payment is made within the 10 months.

From the example above, you could notice that while the interest decreases ($200, $180, $160…..), the principal amount on the loan balance ($10,000) is consistent ($1,000), which means it’s not reducing.

Thank you for read and you can also read more on other forms of loans from our blog by visit our homepage for other relevant information.

RELATED POSTS:  Payday Loans In Jackson Mississippi

Related

Tags: Amortising loan
finance

finance

Related Posts

Both Mortgages and Auto Loans-Similarities

Both Mortgages and Auto Loans-Similarities

by finance
December 17, 2021
0

Both mortgages and auto loans are regarded as secured loans since they require a collateral as a form of security....

Regions Mortgage Login

Regions Mortgage Login

by finance
December 9, 2021
0

Are you looking for your regions mortgage account login? In accessing your account online, you will need your username and...

Bank Statement Loans In California

Bank Statement Loans In California

by finance
December 9, 2021
0

Bank statement loans in California permit individuals to be eligible for home loans with their bank statements of 12 months...

California Small Business Loan Guarantee Program

California Small Business Loan Guarantee Program

by finance
January 5, 2022
0

Small business loan guarantee program in California is available to provide support to small businesses that have difficulties in accessing...

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Recommended

Will A Business Loan Affect Getting A Mortgage

Will A Business Loan Affect Getting A Mortgage

7 months ago
First-Time Home Buyer Loan

First-Time Home Buyer Loan

7 months ago

Popular News

Plugin Install : Popular Post Widget need JNews - View Counter to be installed

Connect with us

Site Links

  • Log in
  • Entries feed
  • Comments feed
  • WordPress.org
No Result
View All Result
  • Cryptocurrency
  • Credit Score
  • Insurance
  • Investments
  • Loans
  • Mortgage
  • Online Applications
  • Real Estates

© 2021 Finance In U.S - Finance News, Tips, Guides & Information In U.S Finance News, Tips, Guides & Information In U.S.

Login to your account below

Forgotten Password?

Fill the forms bellow to register

All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In