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Questions and Answers
What does the Snowball Method prioritize?
What is the main feature of fixed installments?
Which method involves paying only the loan interest initially?
What does an amortization schedule illustrate?
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What is the key factor of the Avalanche Method?
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What is a potential consequence of loan default?
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Study Notes
Paying Back a Loan
Repayment Methods
- Fixed Installments: Borrower pays a fixed amount at regular intervals (e.g., monthly) for a set period.
- Amortization: Loan is repaid through a series of fixed payments that include both interest and principal.
- Interest-Only Payments: Borrower pays only the interest on the loan for a set period, then begins paying off the principal.
Repayment Schedules
- Amortization Schedule: A table showing the amount of each payment applied to interest and principal.
- Debt Repayment Plan: A plan outlining the borrower's strategy for paying back the loan.
Payback Strategies
- Snowball Method: Paying off loans with the smallest balances first, while making minimum payments on others.
- Avalanche Method: Paying off loans with the highest interest rates first, while making minimum payments on others.
Consequences of Non-Repayment
- Default: Failure to make loan payments, potentially leading to legal action and damage to credit score.
- Delinquency: Late or missed loan payments, which can negatively impact credit score.
Importance of Paying Back Loans
- Maintaining Credit Score: Timely loan repayment helps maintain a good credit score.
- Avoiding Debt: Paying back loans on time avoids accumulating debt and reduces financial burden.
Repayment Methods
- Fixed Installments involve paying a fixed amount at regular intervals (e.g., monthly) for a set period.
- Amortization is a repayment method where the loan is repaid through a series of fixed payments that include both interest and principal.
- Interest-Only Payments involve paying only the interest on the loan for a set period, then begins paying off the principal.
Repayment Schedules
- An Amortization Schedule is a table showing the amount of each payment applied to interest and principal.
- A Debt Repayment Plan outlines the borrower's strategy for paying back the loan.
Payback Strategies
- The Snowball Method involves paying off loans with the smallest balances first, while making minimum payments on others.
- The Avalanche Method involves paying off loans with the highest interest rates first, while making minimum payments on others.
Consequences of Non-Repayment
- Default is the failure to make loan payments, potentially leading to legal action and damage to credit score.
- Delinquency refers to late or missed loan payments, which can negatively impact credit score.
Importance of Paying Back Loans
- Maintaining a good Credit Score is achieved by timely loan repayment.
- Avoiding Debt is achieved by paying back loans on time, which reduces financial burden.
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Description
Explore the different ways to repay a loan, including fixed installments, amortization, and interest-only payments, as well as understanding repayment schedules.
