Equal repayment and equal principal repayment are two common types of loan repayment, and they differ in the amount of each instalment and the payment method of loan interest. The following is an introduction to the difference between equal repayment and equal principal repayment:
1. Equal repayment
Equal repayment refers to the repayment of a fixed amount of money, including the principal and interest portions, every month during the term of the loan. Since the monthly repayment amount is the same, the upfront repayment is mainly used to pay interest, while the principal is gradually repaid in the later period. The following are the characteristics of equal repayment:
1.Repayment Method.
Equal payments are fixed monthly payments that include principal and interest. The repayment amount is the same each month.
2.Interest expense.
Since the amount of the repayment is the same each month, in the initial period, most of the repayment is used to pay interest. Over time, interest payments gradually decreased.
3.Advantages and disadvantages of repayment.
1) Advantages: The monthly repayment amount is relatively stable, which is conducive to financial planning. With the passage of time to repay, more and more principal has been repaid, and the burden of later repayment will gradually decrease.
2) Disadvantages: The principal of the loan is less repaid in the first installment, and the capital use efficiency is not high. The total interest on the loan is higher, especially in the early stages.
2. Equal principal repayment
Equal principal repayment refers to the repayment of a fixed principal amount every month during the term of the loan, while the interest part decreases month by month. As the term of the loan progresses, the total monthly repayment will gradually decrease. The following are the characteristics of equal principal repayment:
1.Repayment Method.
Equal principal repayment is a fixed principal repayment amount on a monthly basis, and the principal repayment is the same every month, but the interest is different each month due to the different interest calculation base of each month.
2.Interest expense.
Since the principal decreases every month, the interest expense will gradually decrease each month.
3.Advantages and disadvantages of repayment.
1) Advantages: The total interest expense is relatively low, because as the principal gradually decreases, so does the interest expense each month. At the end of the loan term, the principal has been paid off in full and no additional repayments are required.
2) Disadvantages: The monthly repayment amount in the early stage is high, which puts greater pressure on cash flow, which is not conducive to financial planning.
3. Comparison of the two repayment methods
1.Interest expense.
The total interest expense of equal payments is higher than that of equal principal payments because equal payments are the same amount each month, while equal principal payments decrease as the principal amount decreases.
2.Repayment pressure.
The repayment pressure of the initial equal repayment is relatively small, but the overall interest expense is higher. Equal principal repayment is more stressful in the initial stage, but the overall interest expense is relatively low.
3.Financial planning.
Equal repayment is good for financial planning, and the repayment amount is the same every month, which is convenient for budgeting. Equal principal repayment will have a certain impact on financial planning, as the repayment amount will gradually decrease each month.
Summary:
Equal repayment and equal principal repayment have their own characteristics, and the choice of which option to choose depends on your financial situation and preferences.