How to repay the equal amount of principal?
Among the loan repayment methods,Equal amount of principalis a common repayment method, especially for borrowers who want to reduce their total interest payments. This article will introduce in detail the principle, calculation method, advantages and disadvantages of equal principal repayment, and help readers better understand it through structured data.
1. Definition of equal principal amount
Equal principal payments refer to repaying the same amount of principal every month and paying interest on the remaining principal at the same time. As the monthly principal gradually decreases, the interest will also decrease month by month, so the total monthly repayment will gradually decrease.
2. Calculation formula for equal amounts of principal
The monthly payment of an equal principal amount is made up of two parts: the fixed principal and the interest accrued on the remaining principal. The specific formula is as follows:
| Project | formula |
|---|---|
| Monthly principal repayment | Total loan amount ÷ number of repayment months |
| Monthly interest repayment | Remaining principal × monthly interest rate |
| Total monthly repayment | Monthly principal repayment + monthly interest repayment |
3. Examples of repayment of equal amounts of principal
Assume that the loan amount is 1 million yuan, the loan term is 20 years (240 months), and the annual interest rate is 5%. The following is the repayment details for the first 5 months:
| Period | Repay principal (yuan) | Interest repayment (yuan) | Total repayment (yuan) | Remaining principal (yuan) |
|---|---|---|---|---|
| 1 | 4,166.67 | 4,166.67 | 8,333.34 | 995,833.33 |
| 2 | 4,166.67 | 4,149.31 | 8,315.98 | 991,666.66 |
| 3 | 4,166.67 | 4,131.94 | 8,298.61 | 987,499.99 |
| 4 | 4,166.67 | 4,114.58 | 8,281.25 | 983,333.32 |
| 5 | 4,166.67 | 4,097.22 | 8,263.89 | 979,166.65 |
4. Advantages and disadvantages of equal principal amounts
Advantages:
1. The total interest expense is less: Since the monthly principal repayment is fixed, the interest decreases month by month, and the total interest is lower than the equal principal and interest.
2. Suitable for early repayment: more principal is repaid in the early stage. When repaying early, the remaining principal is less and more interest is saved.
Disadvantages:
1. High initial repayment pressure: The total monthly repayment is high, which may put pressure on borrowers with unstable income.
2. The monthly payment is not fixed: the monthly repayment amount decreases gradually, which is not conducive to long-term financial planning.
5. Equal principal vs equal principal and interest
Here is a comparison of the two repayment options:
| Comparative item | Equal amount of principal | Equal principal and interest |
|---|---|---|
| Monthly repayment amount | Decreasing month by month | fixed |
| total interest | less | More |
| Early pressure | Larger | smaller |
| Suitable for the crowd | Those with higher incomes who want to reduce interest rates | Those with stable income and preference for fixed monthly payments |
6. How to choose the repayment method?
Choosing equal amounts of principal or equal amounts of principal and interest depends on your personal financial situation and repayment ability:
1. If your income is high and stable and you want to reduce the total interest, you can choose an equal amount of principal.
2. If your income is relatively fixed and you pay more attention to the stability of monthly payments, you can choose equal principal and interest.
Summary
Equal principal repayment is a repayment method suitable for long-term interest savings, but it requires higher upfront repayment pressure. Borrowers should make reasonable choices based on their own circumstances and compare the differences between the two methods in detail through the loan calculator.
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