Whether you’re looking for a personal loan or already have one, you must understand that what you repay the lender will consist of the amount you borrowed and the interest charged on your loan. Keep reading to learn what loan principal is, how to calculate your loan principal, and how you can pay off your loan principal early.
Understanding Loan Principal
The word principal, if viewed in the context of loans, means the original amount owed by the borrower to the lender. For instance, if you get a loan of $40,000, then this amount, i.e., $40,000, will be considered the loan principal amount.
Loan Principal vs. Interest
When you borrow, you are responsible for paying both the loan amount and the interest charged on the borrowed amount at a fixed or variable interest rate. You need to understand the difference between paying off the loan principal payment and paying off the interest.
| Loan Principal | Interest |
|---|---|
| The loan principal is the amount of money the borrower still owes to the lender. | Interest is the fee the borrower must pay to the lender for borrowing a certain amount of money. The interest is usually based on an Annual Percentage Rate (APR). |
| The payment made for paying off the loan principal is called the principal payment. | Unlike interest payments you can make in installments, you can pay off your loan principal in a lump sum. |
| The amount of money that goes off towards paying the interest is called the interest payment on a loan. | These interest charges are usually paid off in installments. |
How To Pay the Principal Back
When you start making payments on a large loan, most of the monthly payment will go towards interest, and some will be on the principal. As your payments continue, you’ll slowly pay more in principal and less in interest.
Some lenders allow for principal-only payments. You’ll have the option to make extra payments to the principal on top of your minimum amount. Other lenders require notice if you want to apply additional money to the principal. Check with your lender to see what they offer.
Where To Look To Find Your Loan Principal
To find your loan principal, look at your loan’s monthly statement. The statement will highlight the amount you owe to your lender and the monthly payments you need to make to clear the debt. Each monthly payment you make will be deducted from the principal balance, and this will help you understand the loan debt amount that needs to be repaid.
For example, your mortgage loan account statement will show interest rate, monthly payments, daily interest (the interest added to your loan daily), and principal balance.
You can also see your loan principal on your student loan statement.
You should immediately contact your lender for this information if you cannot see the loan principal in any of your billing statements or documents. This is because the lender must provide detailed information regarding the loan principal, the monthly loan repayment, add-on charges, late fees, the interest rate, or any other extra payments that may be added to your loan payment.
How To Calculate the Loan Principal Amount
To calculate the loan principal amount, you need to deduct the down payment from the loan amount. The amount left is the revised loan principal amount, from which you need to subtract the monthly repayment amount from the principal balance.
Example of loan principal
Here’s how to calculate the loan principal amount:
You get a $9,000 loan. The interest rate applicable to the loan principal has been fixed at 5%. After making a down payment of $2,000, your initial loan principal amount is $7,000 (loan amount – down payment = loan principal amount).
Your lender will multiply your annual interest rate by your outstanding balance but divide it by 12 because you have monthly payments. So if you owe $7,000 on your mortgage and your fixed interest rate is 4%, you’ll initially owe $23.33 in monthly interest ($7,000 x 0.04 ÷ 12). The rest of your payment is applied to your principal.
How To Pay the Principal on a Loan Faster
Some lenders allow you to repay the loan before the stipulated date. You can do this by paying off the loan principal with larger payments than required. If you didn’t choose a variable-interest loan, the interest rate remains fixed, and the principal amount on which the interest is charged gets reduced significantly. So, the amount of money you need to pay as interest each month is less. This, in turn, helps you pay back the loan amount in fewer monthly installments.
Is It Better To Pay the Principal or Interest?
You need to repay both the loan principal as well as the interest. However, paying interest on your loan principal costs you more money. The higher the loan principal, the more interest you need to pay. If you pay off your loan principal quickly, you will spend less on interest payments. This will also help you to repay the entire loan amount quickly. However, some lenders do charge a prepayment penalty. Be sure to read your loan agreement’s terms and conditions carefully.
The Bottom Line
Before getting a business, personal, or student loan, you must understand the relationship between loan principal and interest payment. Paying off the principal faster can drastically reduce the money you need to repay your loan.
Before deciding on a particular loan offer, compare different available loan options. This will help you choose the most financially viable loan option. However, a good credit score and a healthy credit history will allow you many loan options to choose from. So, try to maintain a good credit history.
Remember to carefully read the fine print before signing a loan agreement to know exactly what is expected of you and how much you need to pay.
Frequently Asked Questions
What loans can someone with bad credit get?
Many people are denied mortgages because they have poor credit histories. You have many options if you are open to taking out a loan to help someone who has struggled to repay the money.
A person may qualify for a low-interest rate loan based on his/her income and other factors. Poor credit can often be used to reduce their debts by using adjustable-rate mortgages (ARMs).
Residents living in rural areas can get loans through government programs like the USDA Rural Development Loan Program. These loans are for rural residents with limited access to markets. The program provides long-term fixed interest rates between 3% and 6%.
Low-income borrowers can also be lent by commercial lenders. These companies work with local banks or community development organizations. These companies can charge very little, or even no fees.
What is an emergency loan?
An emergency loan is a short-term loan you can use to cover unexpected financial emergencies. It can be used to cover unexpected expenses or until you are able to repay your debt.
A loan for an emergency may be available to help pay unexpected bills and other expenses.
If you are currently unemployed or have lost your job as a result of a layoff, an emergency loan may be necessary. Unexpected car breakdowns may result in you needing an emergency loan.
An emergency loan is available immediately. You should apply for an emergency loan as soon as you can to get the best terms.
Again, it is important to remember that emergency loans should not be taken out unless you absolutely need them. You will pay higher interest rates if you do not.
If you’re in dire straits and have no choice but to borrow some cash from someone, try to borrow as little as possible. Do not borrow thousands of dollars but only $100-$200.
This way, you can pay back your debt faster without paying more in fees.
Is it possible to get an instant payday loan?
Yes, instant payday loans are available. However, it is important to fully understand the risks.
If you are considering taking out an online loan, be sure to review our top tips on how best to find the best deal.
We also have a list of some of the most sought-after instant payday loans today.
Keep reading to find out the details of each loan type’s payment terms.
What should you consider when applying online for a payday lender?
It is important to understand what you are agreeing to when you apply for a payday loan online.
There are many options available, depending on where you live and how much money you have.
It is important to thoroughly research the company before you apply. You should not sign anything if they don’t give enough information.
These are key factors to remember before you take out a payday loan.
- Information about their fees, penalties and repayment terms
- Contact information, including phone numbers and email addresses.
- Documentation proving they are licensed to operate within your state
- Additional services offered by them (such as faxless payday loans), are detailed below
- They have a contact form that allows you to directly ask questions through their site
- Cancellation of your agreement without penalty
- Even if you owe an existing lender, there is still the possibility of getting a loan
- How soon will you receive the funds once your application was approved?
- They guarantee that they will not charge additional fees or add charges later
- How long it takes to pay off your loan
- What happens to your payments if they aren’t made?
- Your right to dispute the debt
- If the loan is in default, any legal recourse against them
- Whether they will report your payment history to a collection agency
- Their policies on late payments and defaulted loans
- They keep your records for a certain time
- The level of customer service they provide
- How fast they reply to messages
- What happens if they close down
- It’s easy to find another lender
- What do you do if you have a problem
- Are they allowing hidden fees?
- How can they tackle identity theft problems?
- What happens if there is a problem?
- What type of security measures are they using?
- Are you required to reside in certain states by the company?
- Are they able to perform third-party checks?
- Are they BBB certified
- Is there an online list of complaints
- How to complain about or file a grievance
- What laws protect consumers who use online lenders
What app allows me instantly to borrow money?
An idea for a business should not only focus on the benefits, but also the features. Solving problems for people is what it’s all about. Start by identifying the problem that you are trying to solve. Next, identify your users and what they can benefit from your product. Only then can you start to create an MVP (Minimum viable product).
What are some good loans for bad credit?
To find legitimate loan options that will not be denied elsewhere, the best approach is to review their requirements. What do they have to provide as proofs of income, assets and other documents?
This will help you determine which companies will accept you based on your criteria.
You also need to ask these lenders if they are willing or able lend the money.
If you don’t, then you might want to consider other options.
Statistics
- A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400 percent. (consumerfinance.gov)
- Upgrade The company offers a 3 percent cash back on Auto, Health, and Home categories and a 1 percent cash back on the rest. (abcactionnews.com)
- Cons Up to 8% origination fee (abcactionnews.com)
- By comparison, APRs on credit cards can range from about 12 percent to about 30 percent. (consumerfinance.gov)
- For example, CashUSA’s payday loan APRs range from 5.99% to 35.99%, placing them well within the averages for most major lines of credit, including credit cards and bank loans. (timesunion.com)
External Links
ncsl.org
consumerfinance.gov
How To
Why do we need installment loan?
Installment loans are short-term loans which require regular minimum payments. They can last up to one-year and have flexible repayment options. This is very convenient as it allows you to repay the loan whenever you wish and has the ability to have the money at your disposal.
These loans are often applied for by people looking for quick cash, and not concerned about their credit scores. A installment loan is a good option for those who don’t meet the criteria for traditional bank financing.
Before you apply for an installment loan, it is important to carefully calculate how much money you will need. You will need sufficient capital to pay the interest and fees plus another month of payments.
When you’re approved for an installation loan, you should receive your funds within 24 hours. The application fee for an installment loan is typically $40. This service is usually charged by most lenders, so make sure to shop around until your find the best deal.
An installment loan may be the right option for you if you are having trouble paying your monthly bills and fall behind. This type loan is for people who have poor credit scores and face financial hardship.
An installment loan is an option for those who have been rejected by traditional lenders and lack collateral. Your income, your employment history, assets, as well as debts will be evaluated by the lender. If they can verify that you are able to repay the loan, they may approve you for a lesser amount than the amount you owe. Your total debt will not be paid off immediately. Instead, you’ll have to pay off a portion of it every month.
An installment loan requires that you pay the entire balance before receiving a refund. Most lenders do not offer grace periods where you can make late payments.
