Getting a loan is a step that helps us achieve our financial goals. However, there are many factors you need to consider when taking out a loan. One of these factors is loan interest rateis. Loan interest refers to the additional cost applied to the loan amount you receive. The loan installment and repayment plan guides you on how to manage this cost. In this article, we will discuss in detail issues such as what is loan interest, how loan installments are calculated and how to create a repayment plan.
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What is Loan Interest?
Loan interest is the additional cost requested by financial institutions in return for lending services. The interest rate is usually expressed as an annual percentage. It is applied to the principal amount of the loan. The interest rate is determined by the bank or financial institution from which the loan application is made. This rate may vary depending on the loan type, loan amount and repayment period.
Loan interest is added to the loan amount and paid over the loan repayment period. Getting a loan with a low interest rate will be less costly during the repayment process. Factors that determine the loan interest rate include economic conditions, market interest rates and the credit history of the loan applicant.
The loan interest rate depends on several factors, such as your credit score and income level. It is expressed as a percentage of the principal and varies depending on customer characteristics, risk status, loan amount, maturity and other credit information.
It is the rate calculated by dividing the total amount of the loan into monthly installments. This rate is added to the loan amount as collateral and collected by the bank in case of default.
The lower the credit score, the higher the interest rate will be offered. Lenders use credit scores to evaluate a borrower’s risk and reward potential.
How is the Interest Rate Determined?
The interest rate charged by banks is determined by a number of factors, such as the state of the economy. A country’s central bank sets the interest rate, which it uses to determine the APR range each bank offers. When the central bank sets interest rates at a high level, the cost of debt rises. When the cost of debt is high, it discourages people from borrowing and slows consumer demand. Additionally, interest rates tend to rise with inflation.
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How to get an interest-free loan?
Interest-free loans are a service provided by banks only if the necessary conditions are met. On the other hand, when we look closely at interest-free loan services, it is seen that banks receive a difference in this loan service under the name of profit or participation share rate.
How to Calculate Loan Installments?
Loan installments are regular payment plans that allow you to repay the loan amount you have received in certain periods. Installments are calculated depending on the loan interest rate, repayment period and loan amount.
Another factor you should consider when calculating your refund is additional costs. Additional costs such as loan origination fee, insurance fees or commission affect your loan installments. Therefore, it is important to take all these expenses into account when calculating loan installments.
In loan payments, interest is applied again to the remaining principal in each installment period. For this, the loan interest rate is multiplied by the remaining principal amount. Except for housing loans, taxes such as BSMV and KKDF are included. When creating a debt payment plan, monthly payments are fixed and the loan installment amount is determined.
How to Pay Loan Debt?
There are many answers to the question “How do I make loan payments?” Alternatives to pay your loan;
- Automatic payment instruction
- Payment via internet branch
- payment from ATM
- Payment via phone branch
- You can repay the loan by making payment through the bank branch.
How to Create a Repayment Plan?
A payment plan is a planning tool that you need to create so that you can pay your loan installments regularly. The loan payment plan determines the period and payment amount for which you will pay the loan installments.
You can follow these steps when creating a repayment plan:
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Determine a period in which you can pay your loan installments regularly. This period varies depending on the loan type and your financial situation.
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Calculate the amount of your loan installments. As mentioned above, the interest rate and loan amount factor into this calculation. Don’t forget to take all expenses into account as well.
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Review your income and expenses. It is important to take your monthly income and expenses into account in order to pay your loan installments regularly. Thus, you can determine an amount that you can easily pay your loan installments.
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Consider emergencies. When creating your repayment plan, don’t forget to save for emergencies. Thus, you can pay your loan installments without any delays when you encounter unexpected expenses.
After creating your repayment plan, it is important to manage your budget in accordance with this plan in order to pay your loan installments regularly. It is important that you do not miss your payments, your credit score does not decrease and your future loan applications are successful.
What happens if loan installments are not paid on time?
One of the most important responsibilities when using a loan is to pay the loan installments regularly and on time. However, sometimes unexpected situations arise. In this case, it becomes difficult to pay the loan installments on time. So, what happens if you don’t pay your loan installments on time? Here are the negative consequences you may encounter in this case:
Loan Delay Interest
When you do not pay loan installments on time, financial institutions often impose late payment interest and penalties. Delay interest is calculated daily from the date you are required to pay the loan installments and continues until the payment is made. Penalties are applied in cases where the payment period is exceeded. These late payment interest and penalties increase your total debt and make your financial obligations even more difficult.
Decrease in credit score
Failure to pay loan installments regularly will cause your score to decrease. Creditworthiness is an indicator of your financial history. This situation is taken into account by credit institutions in their credit evaluations. Delayed or unpaid loan installments negatively affect your credit score. This will result in your future loan applications being rejected or you getting a loan with high interest rates.
Enforcement and Follow-up Process
If you repeatedly do not pay your loan installments, financial institutions may take legal action to collect their receivables. In this case, the enforcement and follow-up process is initiated. The follow-up process continues through lawyers or collection companies and requests that you create a payment plan in accordance with the agreement made with you.
Not paying loan installments on time makes it difficult to establish a good credit history. Credit institutions evaluate individuals who make regular and on-time payments more reliably and offer credit opportunities. However, if you miss your payments or do not make any payments, you may encounter difficulties in your future loan applications.
If you cannot pay your loan installments regularly, it is important to contact financial institutions to create a payment plan or look for alternative solutions.
