With the year-end surprise spending season approaching, when buying a house or buying a car loan, we often hear about two different repayment methods: "equal principal and interest" and "equal principal". What's the difference between the two?Let's find out!
First of all, equal principal and interest means that the repayment amount is the same in each installment, that is, the sum of principal and interest remains the same. This method is characterized by relatively low monthly repayment pressure, as the principal and interest are more evenly distributed. However, since the total amount of repayments is fixed, the total repayments will not change if the interest rate rises or falls. If you have an early repayment plan, then this method will pay more interest upfront, which is not friendly to the borrower.
Equal principal amount, on the other hand, means that the principal part of the repayment amount in each instalment is the same, and the interest part decreases with the decrease of the principal. This method is characterized by a gradual reduction in the pressure of monthly repayments, as the interest will gradually decrease as the principal is gradually repaid. However, due to the higher principal portion of each instalment, there may be more pressure at the beginning of the repayment. However, this repayment method is suitable for a lump sum payment after a few years, so that the interest borne in the early stage is less, and it is more friendly to those who repay the loan early.
To sum up, equal principal and interest and equal principal have their own advantages and disadvantages, and which method is more suitable for you needs to be judged on a case-by-case basis. If you want to make a less stressful monthly repayment, you can choose equal principal and interestIf you want to make your payments less stressful over time, you can choose an equal amount of principal. When you have an early repayment plan, be sure to choose the repayment method of equal principal.