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Devising Newer Ways of Repayment

How good would it have been had there been no obligation to repay the loan or mortgage? This is what most people think when required to make the monthly repayments. But try as much as they can, they are never able to change the situation.

The borrower has to cut his monthly expenses to provide for the repayment. The amount to be repaid includes the principal amount of the loan and the interest calculated based on the rate of interest prevailing in the market. This is the traditional method of repayment.

The loan amount is broken into a number of small parts for an easy repayment. The number of parts corresponds with the term of repayment. Thus, if the loan or mortgage is to be repaid in a period of five years, the number of equal parts of the loan will be 60. The repayments are to be made on a monthly or quarterly basis.

An improvement in the method above was made to reduce the burden of a borrower. The borrower is required to pay regular monthly installments as in the earlier method. After a certain number of installments the borrower can pay the remaining balance of the loan with a single balloon payment.

An alternative of the traditional method of repayment is an interest only repayment. In this type of repayment, the borrower is required to pay only the interest. At the end of the term of repayment or any particular time period desired by the borrower, the balance on the loan is repaid in full.

The monthly repayment in the interest only method is far lesser than in the former method. This is because the monthly repayment in case of the former includes both principal and interest. It is on this count that people prefer to repay through the interest only method. However, this method of repayment increases the cost of the loan.

A Repayment vehicle is created to repay the loan or mortgage at the end of the term of repayment. The borrower is required to pay a monthly figure into the repayment vehicle.

Pensions, endowment policies, and individual savings account are the most important repayment vehicles. Pensions are widely used for repayment of the loan or mortgage amount. An added advantage in case of the pension policy is that the employer pays half of the amount of pensions. Thus effectively speaking, the borrower spends only half the amount in the repayment. Being tax free, these repayment vehicles offer a cheap means of repayment.

Another method of repayment which is not very popular but can be used for short term loans is the payment of principal and interest in one installment. This is helpful for people who need funds during contingencies. They can pay off the loan when the situation improves. An advantage of this type of loan is that the interest cost is lesser.

If you find that the methods discussed above are rigid as to the amount of monthly installments and the mode of repayment, then the equal principal payments will be helpful. The interest in this method is calculated in declining balance method. Thus, it means that the repayments change every month according to the reduced balance.

Early or premature repayment of the loan or mortgage (if permitted by the lender) is another repayment method. Before signing any documents for loans and mortgages, one must see properly if the lender does not prohibit early repayment with a penalty clause. Refinancing a loan or remortgaging a mortgage can help customers get rebate for early repayment. These transfer the loan or mortgage to another lender. So the borrowers can benefit from a lower rate of interest and a rebate for early repayment.

Whatever be the method chosen, the ultimate end of it would be the repayment of the loan or mortgage in full. All forms of repayment have their respective pros and cons. A perfect match between the pros and cons of the repayment methods and the individual financial condition must be established in order to derive the best method of repayment. There is not always an easy return from a particular method of repayment. A wrong repayment method can be precarious to ones financial health.

Andrew baker has done his masters in finance from CPIT. He is engaged in providing free, professional, and independent advice to the residents of the UK.He works for the personal loan web site for any type of uk secured and unsecured loan please visit


New York Times

China's Economy Grew Steadily, Thanks to Loans and Homes
New York Times
Shoppers in Shanghai. Retail spending, housing sales and trade figures suggest an economy growing steadily under the guiding hand of the government. Credit Chandan Khanna/Agence France-Presse — Getty Images. BEIJING — China turned to a ...

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Greek Banks Face 'Gangs' in Bad-Loans Battle With Defaulters ...
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Lincoln Journal Star

Nelnet buys competitor in servicing student loans
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Noting that the two companies combined have more than 90 years of experience in the student loan industry, Noordhoek said they, "now have the opportunity to transform student loan servicing for millions of borrowers, providing a consistent and ...
Nelnet (NNI) to Acquire Great Lakes Educational Loan Services for $150

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3 big things Americans get wrong about student loans
Millennial Personal Finance polled 500 Americans with student loan debt who are currently in college or who graduated between 2014 and 2017. "We tested their basic knowledge on student loans by asking a few questions, and the results were uninspiring," ...

The Denver Post

Women who own businesses find bank loans harder to get
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In this Wednesday, Oct. 4, 2017, photo, Kirsten Curry, left, owner of Leading Retirement Solutions, laughs with Gene Skonetski, a client services manager, in their office in Seattle. Curry has applied to four banks for loans for the retirement planning ...

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What you need to know about the government's 'Game of Loans' operation
The initiative, known as “Game of Loans,” includes cases, a judgment and other enforcement actions against several companies accused of illegally bilking millions of dollars from student loan borrowers looking for help managing their debt. MarketWatch ...
Advocates Praise Student Loan Scam Crackdown, Demand MoreNerdWallet (blog)
Major crackdown on student loan scammersKGUN
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Inside Higher Ed

Black Grads Struggle to Repay Student Loans, New Data Show ...
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New government data show black graduates with bachelor's degrees are four times more likely to default on student loans than white grads.
Half of black student loan borrowers default, new federal data showInside Higher Ed
'Crisis' for African-American Student Loan Borrowers | Education ...U.S. News & World Report
New Federal Data Show a Student Loan Crisis for African American BorrowersCenter For American Progress

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Italian PM Says EU Bad Loan Measures Must Not Hamper Lending
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BRUSSELS (Reuters) - Italy's Prime Minister will seek assurances from EU authorities that its banking system will not face "inappropriate measures" that hamper lending under stepped-up efforts to manage bad loans. The European Central Bank - which ...

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Student loans: Almost half of black university students will default ...
College is usually seen as a golden ticket—get your degree, and you can launch into a life worthy of the American dream. In theory, young people take out loans ...
State says company took advantage of Pennsylvanians with student loansAllentown Morning Call
Half of All Black Student Borrowers Default on Their Student LoansBlack Enterprise
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Student loans take a mental toll on young people -
As student loans reach record highs, the psychological toll of all that debt weighs heavy on young adults.
Ask Brianna: How do I get my student loans back on course?WTOP

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