Are you going to borrow money, then it is good to know how it is with interest and the personal loan .
A personal loan is a solution if you are short on cash but have to make a big expense. It can then be about a new car because the old one has gone, but it can also be a renovation that you want to finance with a loan. Anyway, you enter into an agreement with a lender that lends you a certain amount and that you pay it back over a fixed period. We looked for you how it is with the interest you pay on such a loan and how that amount is built up.
A variable amount of interest and repayment
If you take out a personal loan, you will be credited the amount of the loan to your bank account in one go. So that is your fault that you have at that moment. An appointment is made about the amount of the repayment, and that is a fixed monthly amount. Then a calculation is made. You pay a monthly amount and that is composed of interest and repayment.
You have agreed in advance with the money lender what interest is included with your loan. The payment of a personal loan consists of an amount of interest plus repayment. How much you pay in interest, the lender calculates for you. The interest is always calculated on the outstanding amount of debt. If you have the maximum debt, then you also have the highest amount of interest. Gradually the ratio becomes less. A calculation is made; total monthly amount minus interest is redemption. This means that you pay a very low repayment in the beginning and that you pay less and less interest over the years.
What about the term of a loan
You will always be inclined to want to take out a loan for as long a period as possible. After all, you pay a lower amount of repayment, which makes the monthly expenses more attractive. However, you have to take into account that you take out a personal loan with a specific purpose. If that goal is a renovation, then it is a good idea. After all, you still live in your house for a considerable number of years and you can therefore get these costs. In that case you do not pay any repayment on your personal loan while you have already lived elsewhere.
Another story becomes when you take out a personal loan for a car. You usually drive about 5 years before you buy a new one. If you have taken out a loan that runs for 10 years, it is not wise to take out a personal loan. You then pay 5 more years while the car is no longer in your possession. You will therefore always have to let the term of the personal loan depend on the purpose of the money.