Understanding Amortization Schedule

 

An Excel Amortization Schedule

The statement of repayment is the most important part, when you are going to take a loan. It tells you the amounts you are required to pay the bank on monthly basis. The repayment schedule is popularly known as Amortization schedule. It is numbers and calculations which confuses most of the people. But once you understand the Amortization schedule you can take charge of paying and nobody can fool around with you. Not even the bank people. MS-Excel can be used to make a schedule.

Today we are just going to start with understanding a few terms that are used in the schedule. They are technical but very easy to understand They are:

  • Principal: The total amount that you have borrowed from the bank. For example if you have applied for $ 30000 loan and the granted loan amount is $ 25000 then your principal is the $25000 you receive from the bank. It is not the application amount of $30000 but the loan amount actually received $25000.
  • Interest rate: A percentage of the Principal will be charged by the bank. This is the fees for using the bank’s money. It will be the part of your installment every month.
  • Term – The period for which the loan is granted is called the term. For example if you are getting you $25000 loan for 48 months then 48 months is the term of the loan.
  • Amortization –The table showing the monthly installments is called the Amortization schedule. It will have all the terms discussed above.

After understanding the terms you will be better equipped to handle the repayment of the loan. For more information you can visit ferratum UK.They have an amazing collection of blogs which will make you understand about various kinds of loans. Also there are amazing online calculators which you can use.

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Questions to ask before taking a Loan

Before borrowing money you should consider whether it is the right decision or not. Over the years we have been used to taking loans whenever we need to purchase. However, Loans are two-edged swords. Of course it makes your life easy, but you should consider how it will affect your finances.

Questions before borrowing
Ask questions before you borrow

Borrowing means that you have to pay back in a time frame. Does your financial position allow you? Ask yourself these basic questions before borrowing.

  • Do you really want to buy? – This is the most important question. Sometimes we are led in by advertisements to believe that the article we are buying is a necessity. You can delay most of the purchases till you have the cash. If you are motivated to buy then depend on your saving skills rather than a loan.
  • Can you make the repayment? – Before borrowing financial assessment is required. How much disposable income you have? You should never borrow if you will find it difficult to pay. Even if you can pay it should not drain you. So, be careful about the repayment plan you are getting into.
  • How soon can you be debt free? – Freedom from debt burden makes you stress free. You should always assess how soon you can be debt free i.e. how soon you can repay. Loan is not income but liability for you.
  • What if you face financial emergency? – Sometimes financial emergency takes away your ability to pay. It can be loss of pay, or a burglary. You need to take all things in consideration. Also, have you got enough leverage in your bank to pay back if emergency hits? Be very clear on these points before you take a loan.

Loans if unpaid can take happiness away from your lives. So, assess, re-assess and only if it is unavoidable take a loan. These are difficult time so more care is required.

 

How soon should you start repaying your loan?

Living in debt can be really complicated, and a lot of people end up making mistake because of the same. People only have so much money, and it can be really confusing to prioritize at this point of time, as well. So, what do you do with your income? How do you start repaying your loan? Should you focus on repaying the loan or divert more of your attention towards saving for the future?

There is no single correct answer. There are some people who prefer starting their loan payments earlier on so that they don’t end up spending a high amount of money in the form of interest. However, this depends on your income and your current major expenditures. It is easier for you to start early payments on your loan if you are single and do not have a family to worry about.

Loan Repayment

If you do have a family and you want to stay ahead of your loan payments, you would have to be very careful about your expenditures and make sure that you save as much money as you possibly can. This way, you will be able to pay back your loans without your savings suffering a huge setback.