| Student Loan Repayment |
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Student Loan Repayment You may have heard one thing about loans in the past and that is the term repayment. Obviously, it is not a difficult term, but sometimes for a lot of people they do not entirely understand what it means. Whether it is a mortgage, a student loan, business loan, or any other type of loan you may hear this term when you walk in the door. The actual term definition from a loan standpoint means that the loan payments are split up monthly into capital and interest so you are paying on both with one payment. What does this mean to you? How does it relate to the bank? How does this benefit the loaner? The student loan repayment plans are really designed in favor of those making the loans. There is really no way around this and generally anyone who makes a loan to you will have it setup in this way. The best example I can offer is that if you let your friend borrow ten dollars but you wanted him to pay one dollar in interest and he was to pay you back making 4 payments of $2.50 back for the loan, you would have him pay the majority of the interest upfront. This means that instead of $2.50 he would need to pay $2.75 to cover the extra dollar he is paying in interest. The downside is that actually you want him to pay $0.50 on the interest in the first payment. Only $2.25 is actually cutting away at the principal of the loan. On his last payment, he is paying entirely on principal. This is done so that the loaner ensures he gets his money as early as possible. How does this benefit you? The benefit is really found only when you decide that you want to pay more on top of the lowest monthly payment. So if you are early on in the loan, and your payment is $200 per month, you could pay $250 and this would actually knock a ton of time off of your student loan repayment plan. This is why many people when they get loans they will try to pay a little bit extra because just paying a little bit more than what your lowest payment is will ensure that you pay it off much faster and far less in interest. The bank essentially rewards you for paying your student loan off early using student loan repayment plans. |
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