Loan repayment, is it better to reduce the installment or the number of installments?

<>

When a loan payment, a capital that has been previously assigned is returned. In general, the installments are paid quarterly, monthly, etc., each of which will cover a part of the loan requested and the interest generated.

Cuando se quiere proceder con una dinámica de amortización de deudas derivadas de solicitudes de préstamos anteriores a bancos o organizaciones financieras, es usual preguntarse cuál es la forma o strategy más eficiente para liquidarlas.

In these cases, decisions must be made based on reliable information and considering the previous experiences of other users. There will be advantages and disadvantages; pros and cons that will support or discredit a specific course of action in certain circumstances.

Analizamos y contrastamos en este texto, un contents que nos posibilita dar respuesta a la pregunta de si será mejor reducir las cuotas, o reducir el número de cuotas, para amortizar un préstamo.

Before commenting and focusing on this chapter, we will briefly comment on some points related to the issue of repayment of loan money.

Depending on the strategy personally selected for the return, this amortization can be partial or total; always being the tendency to produce savings in the accounts of those who amortize. The interest that is generated will be of a lower amount, the amount or the term is reduced, considering that the operation has not been neutralized by the early repayment commissions of the loan.

The amortization of a loan will rarely be able to be developed at the beginning of the same. You have to wait months or years to execute it, and this will depend on the conditions of the contract that was developed with the bank.

Each entity and line of credit will offer differentiated terms, which must be studied previously. to check if it is feasible to take advantage of the early repayment of the loan in question.

Ways of financing loan repayment

French amortization Es una de las formas más comunes y sencillas de financiación existente, que se trata de pagar una tasa equivalente en todos los períodos. Habrá un cupo y una fecha para el client, de forma general el mismo día del mes para realizar el reintegro del dinero. The same type of payment will always be faced, which could be inconvenient in specific periods of the year or seasons where financial solvency is more adapted. It is necessary to have sufficient liquidity to be able to face the payment according to the date agreed in the loan contract.

Another opportunity will be to increase the fee., a method in which a reduced fee will be paid at the beginning, which will increase over time. Its most important advantage is that you can have a longer term to carry out or plan an effective payment strategy.

On the other hand, the decreasing quota, translates into a higher payment variant at the beginning and less in the final phase. Many consider it a less than ideal form of negotiation, even when it is convenient in certain circumstances.

As the months go by, fees are reduced and it becomes feasible to manage finances more freely. You can have a loan amortization table, facilitating the knowledge of the amount of the installments to plan the payments. It is advisable to have savings so as not to miss the commitments of the first months.

Successful repayment of the loan money

To be successful in the payment maneuver Bank debt without failing or failing in the agreed installments., the person who has applied for the loan has to accurately plan their expenses and income, thus being able to know the financial operating margin they have.

More important still is this action level if you have your own business. Otherwise, when you are a common worker or employee, you must specify and have control over the monthly salary to be able to cover bank commissions, and at the same time to be able to manage personal accounts.

Experts advise you to start an activity or expand an existing business when applying for a loan. If you have time practicing some type of enterprise or activity, it is very feasible that you have data that can manage a correct expectation about the monthly benefits to be obtained, otherwise you will have to operate with more uncertainty.

If, after applying for a loan, the monthly benefits that are obtained are able to cover the agreed installments with ease, and the expectation of increasing the benefits with the investment is guaranteed with a good probabilistic sense, it can be considered an appropriate financial maneuver. .

Amortization of the loan reducing installments and number of terms

After having obtained a loan and after some time, the economic situation of the person who applied for the loan can change or improve in their favor for multiple reasons, whether fortuitous or expected. In various cases the most reasonable position could be to return all or part of the requested money. In general, the interests that are applied from the bank will be reduced, this being one of the main motivations to develop the amortization.

A question is imposed. Is it more convenient to reduce the monthly fee or pay the same amount as before but in a shorter period of time?

Taking into account these last two variables and depending on the need that is had at a given time, while also taking into account the capital to be amortized, it is necessary to assess which of the two options the interested party has to take advantage of.

Before choosing the loan repayment strategy, it is necessary to know and study the conditions of the contract. Esto podría contener una penalty si se toma la propuesta de amortización, denominada comisión por amortización anticipada. It cannot exceed a stipulated percentage. For shorter periods of stay, this percentage is usually reduced.

Por tanto, es de vital relevance chequear personalmente cómo están los ahorros con la amortización anticipada, este event relacionado con un viable pago de la comisión de amortización. If it is a very small difference, it could be concluded that it is not worth executing a amortization of this dynamic in the line of credit.

What will always be sought is that this type of commission is not included, trying that the banking movement results in more profitability with greater savings. It is well known to recognize that the current bank offer allows credits excluding the commission for early repayment.

It is feasible to calculate how the term or the repayment installment of a loan will vary when an advance is made, using partial loan repayment simulators, which perform the recalculation of the term or installment.

Loan repayment with installment reduction

This type of amortization is executed when a lesser amount of money is paid monthly for the loan that was obtained, but maintaining a maturity term equivalent to that agreed. Es una alternativa considerada favorable si el target es tener un mayor alivio mensual en la devolución del préstamo.

Consider the case in which a person has been granted a loan of 10,000 euros for 5 years, where the interest will be 10%. If that person considers that his economic situation has a greater predisposition to the reduction of the quota, a strategy with the same permanence would be maintained, even when recalculating the monthly quota. From this dynamic, the monthly fee to be paid will decrease from € 212.47 to € 191.22. When the loan ends, a total amount of € 11,473 will be returned. In a practical way, the interest will be reduced by € 788.

Amortization of the loan reducing the term and maintaining the installment

In this case, an equivalent quota would be maintained, but the months to formalize the financial operation will be reduced.. Suppose that you choose to stay with the rate of € 212.47, of this dynamic you will be paying for a period of 53 months; instead of the first 60 months that it was supposed to. Thus, the obligation of the loan will be in conclusion of € 12,261.

In a concrete example like this, lowering the rate is seen as a more advantageous initiative in view of paying less money.

It is advisable to request the complete amortization table from the financial entity in question that is being used, and carry out simulations, to understand with more approximation and certainty if in a particular case it will be more advantageous to amortize in advance in time or in installments.

Term vs. Quota Which one to select?

When the intention is to save to the maximum of the existing opportunities, the most profitable thing is to proceed with the reduction of terms. In such case, the interest will be generated in a shorter time.

For those who face circumstances or scenarios in which taking charge of the monthly fee is often difficult, reducing this is the most coherent model of action.. If the loan had a variable interest, and we have indications that it will probably increase, it is a suggestive alternative to project on the reduction of the installment while maintaining the term. This will prevent the fee from becoming more expensive.

Shortening the term will be the way to save more money, since time is usually the factor that will cause interest to increase.