Repayment loans, loans are regularly repaid.
Repayment loan meaning and definition
The repayment loan is a special form of repayment of the loan. As a loan, it is one of the medium to long-term debt financing. In addition to the long term, loans are usually characterized by the fact that the repayment and repayment of the loan amount are provided in fixed amounts. The term repayment is defined as the repayment of a liability. It can take the form of both installments and a single amount. For loans, the repayment obligation of the borrower refers to the loan amount paid out.
The repayment therefore only includes the repayment of the loan amount, but not the interest. Depending on the type of repayment (repayment), a distinction is made between annuity loans, amortization loans and term loans (interest loans). For repayment loans, there is also the term deposit loan. As with the annuity loan, repayment of the loan amount takes place in installments as well, while the term loan is repaid in a single payment at the end of the term.
Special features of the repayment loan
The repayment loan is characterized by the constant repayment during the entire term. The loan amount is therefore repaid in equal installments (capital installments). However, these capital rates do not include interest payments, unlike annuity annuities. The outstanding loan amount (residual debt) is taken as the basis for the basis of the interest calculation.
Since this residual debt is continually reduced as a result of the periodic repayments, the amount of interest payments offset is also reduced. The repayment loan, therefore, only the capital rates remain constant throughout the term, while the total burden per period continuously decreases. Amortization and interest payments are usually made in the form of a monthly total payment. For the borrower of an amortization loan, the monthly burden (repayment plus interest) decreases as the loan matures.
Together with the annuity loan, the repayment loan is one of the preferred forms of consumer loans. The background to the choice of these forms of redemption lies in the assumption that consumers can settle regular installments with their regular income. In contrast, full service of the loan amount in a single amount at the end of the term seems to be unrealistic in most cases.
The advantage of the repayment loan is the linear decrease of the outstanding loan amount. This form of repayment is often preferred by companies that want to repay the borrowed loan at the same time as the multiple linear depreciation of the financed asset (eg machine). The decreasing overall burden will also benefit those borrowers who will retire during the term of the loan. As retirement benefits are lower than in previous years, retirees face fewer monthly burdens.
In the ideal case, they can still afford the comparatively higher burdens at the beginning of the period of employment during upright employment. In other cases, agreeing to a repayment loan can be a disadvantage. The large initial burden is particularly disadvantageous if the investment financed with the repayment loan shows initial difficulties in the first few years after the acquisition and only generates low returns. In real estate financing, the repayment loan is the less used type of loan compared to the annuity loan.