It turns out that in the first months Alexander pays off the lion's share of the interest that should be accrued for the year. Does this mean that the annuity schedule is obviously unfavorable for the client? This is not entirely true.
Indeed, the closer the end of the loan repayment period under the agreement, the smaller the amount that the borrower can save with early repayment. However, this payment format helps the bank minimize some of the risks, so it can often offer the borrower a larger amount and a lower rate.
Differentiated schedule
It involves paying off the "body" of the debt in equal parts. Usually, monthly. The accrued interest is paid in other proportions - similar to the annuity schedule, banks usually offer clients to pay the largest part of it in the first months. Then the largest payments will have to be made.
A differentiated payment schedule usually involves saving on interest. But it has a significant drawback: in the first months of using the loan, the borrower has to make the largest payments. This is not very northeast mobile number database convenient, because during this period the bank client can make large purchases for which the loan was initially required. Usually, it is more comfortable for the borrower to pay more after some time, rather than a month after receiving the loan.
For the same reason, banks rarely offer clients payments on a differentiated schedule. It is not that creditors are trying to earn interest by any means, but that they are trying to minimize risks. According to statistics, it is usually easier for bank clients to cope with annuity payments than with differentiated ones. Therefore, the choice in favor of the former becomes obvious.
The borrower has several ways to reduce the overpayment. The simplest option is full or partial early repayment. Despite the fact that with annuity and differentiated payments in the first months he pays the largest amount of interest in proportion, it is still possible to save. But there is an alternative option - refinancing. Let's consider both methods in more detail.
Partial early repayment
Most loan agreements provide for the possibility of early repayment of the debt. This applies to both the "body" of the debt and the accrued interest. At the same time, it is the principal amount of the loan that should become a priority, especially with a differentiated schedule. The bank accrues interest on it.
Also pay attention to the terms of the agreement. It is quite likely that it will contain the following provision: if the borrower makes an additional amount with each subsequent payment, the bank is obliged to use it to pay off the principal debt and recalculate the interest, creating a new payment schedule. Usually, this helps to avoid bureaucracy: calculations are made automatically, and new data instantly appears in the bank's mobile application.