Personal loans are one of the most popular loan options that you can use for diverse financial needs. These loans come with many attractive features. With the increased ease of applying and availing an online loan, people are turning to personal loans to fulfil different financial needs.
Today, you can download a money loan app in a few clicks and avail a quick loan in a day or two. However, before you submit that loan application, you must know your repayment options.
Read on to know more about your personal loan repayment methods.
What is the meaning of loan repayment?
Loan repayment is the process of repaying borrowed money along with the interest incurred by a lender over a pre-decided period of time. Loan repayment entails repaying the loan’s principle as well as any accumulated interest or fees following the conditions of the loan arrangement.
What are the different repayment options for a personal loan?
Here are all the various repayment options available for an online loan that you can opt for along with their advantages and disadvantages.
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Fixed Repayment Option:
This is the most preferred mode of repayment. In this type, you can make set monthly payments over a defined time frame. Because the interest rate and loan period are set, you can easily plan your monthly payments.
Advantages:
- Payments are reliable and simple to handle.
- Has a fixed interest rate for the duration of the loan.
- Better ability to manage your monthly budget.
Disadvantages:
- Repayment terms are often rigid, making it difficult to make early or late payments.
- Throughout the loan’s duration, you may wind up paying more interest.
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Variable Repayment Option:
The interest rate charged varies during this repayment plan. Budgeting may become more difficult as a result of changes in the amount of the monthly payment. But there’s also a chance that the interest rate may go down, bringing the monthly payment down.
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Advantages:
- Provides you with extra payment flexibility.
- The interest rate changes under market rates, which may result in you paying less interest throughout the loan.
- You have the choice to repay the loan earlier.
Disadvantages:
- You may wind up paying more if interest rates rise.
- Payment amounts might differ, which could make it challenging for you to budget.
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Interest-Only Repayment Option
With this kind of repayment, you just make monthly interest payments while deferring all principal payments. This may result in cheaper monthly payments but may leave you with a big debt at the loan’s end.
Advantages:
- Decreases the monthly payments for the first few years of the loan.
- Extra cash flow is available early on in the loan.
Disadvantages:
- Does not go towards reducing the principal balance of the loan, thus after the interest-only term, you will still owe the same amount.
- Long-term costs might be higher since it results in you paying interest.
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Balloon Repayment Option:
In this option, a large “balloon” payment is expected at the end of the loan term, while you pay smaller monthly installments throughout the loan’s duration. This choice can be appropriate for you if you anticipate receiving a sizable infusion of cash at the end of the loan term.
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Advantages:
- Decreases the monthly payments for the first few years of the loan.
- Extra cash flow is available early on in the loan.
- Enables loan early repayment.
Disadvantages:
- Requires a sizable final payment after the loan term, which you may find challenging to make.
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Prepaid Repayment Option:
With this method of repayment, you can make extra monthly payments against the principle of the loan, bringing down the total amount owing and shortening the loan’s duration. It’s vital to thoroughly read the loan agreement since certain lenders may impose a prepayment penalty.
Advantages:
- Enables early loan repayment, which can help you save money on interest costs.
- Gives you the choice to pay off the debt in additional installments.
Disadvantages:
- Some lenders could impose a fee if the loan is repaid early.
- For making additional loan installments, you could have to pay a charge.
Conclusion
In conclusion, there are several repayment choices for personal loans that may be tailored to fit your demands. It is crucial to pick a repayment plan that will allow you to manage your debt without experiencing financial distress. Before accepting an online loan, make sure you are aware of the terms and circumstances.
To select the loan on a money loan app that best meets your demands, it’s also a good idea to examine the conditions offered by different loan providers. In the end, choosing the best repayment choice will help you lessen the stress and workload associated with managing personal loans, enabling you to concentrate on other crucial financial objectives.