After paying several thousands of dollars on the root canals on my upper teeth, my dentist told me that they had to be pulled. He told me that the dentist that did the work didn't do it properly and that all of the teeth were infected. After I collected myself, we started discussing the cost of the extraction procedure and the cost of the dentures. I knew I couldn't pay for all of that out of my pocket and he explained the dangers of allowing dental infections to fester. I quickly learned about financing dental procedures. If you are in a similar situation, go to my site to learn about your options of financing dental work.
Installment loans allow you to borrow a lump-sum of money and repay the balance over time. When you get an installment loan, the lender tells you how much your payments are and how many you must pay. Each payment is equal, yet the lender divides the payments between interest and principal. If you are wondering how this works, here is a guide to help you understand how interest and principal work with an installment loan.
Your Loan Has a Stated Interest Rate and a Beginning Principal Balance
First, when you borrow money through an installment loan, you borrow a specific amount. If you borrow $10,000 through this loan, your principal balance is $10,000. The loan comes with an interest rate, and this rate determines how much interest you pay for the loan. If the loan has a 10% interest rate, you pay 10% a year for the money you borrow.
The other loan term you will know is the length of the loan. If the lender requires repayment in full in three years, you will have 36 equal payments to make on this loan. These are the basic details of all installment loans, and these are the three things you should know when borrowing money.
The Interest You Pay Changes
One key thing about installment loans is that you must pay equal payments every month, but how the bank divides the payments changes. When you initially take the loan, you owe $10,000. If you view the average interest you pay for the first year by using this amount, you would multiply $10,000 by 10%. The answer is $1,000. The first year you have the loan, you will pay approximately $1,000 in interest.
The next year will change, though. Suppose that the principal balance drops to $7,000 after the first year. The interest rate does not change, but you will pay less in interest this year. To determine the approximate amount, you can multiply $7,000 by 10%. The answer is $700. As you can see, you pay less interest in the second year, which is primarily because your principal balance is lower. The year after this, you will pay even less in interest because you will owe less.
Banks call this principle amortization, and your lender will give you an amortization schedule so you can see precisely how this works when borrowing money through an installment loan. For more information on these loans, reach out to a company like Ardmore Finance.
Share10 July 2020
