Total Loan Amount Repayable

The figure that matters here is the APR, or annual percentage rate.

This figure tells you how much interest you will be paying over the course of the year on the loan balance.

Things are complicated a little if there is also the addition of payment protection insurance or other insurances, but in the simple case, then APR is what you need to consider.

Of course the longer the term of the loan, you will also have more to pay because there are more years or months for the loan balance to accrue interest at that rate.

All of this means is that it is not readily obvious at all how much your loan amount repaid will actually work out to be.

Luckily there are a number of calculators online and the banks or financial institutions you go to should always tell you how much you will end up repaying over the term of the loan so that you know exactly how much you are going to end up owing.

The minimum payment also needs to be reconsidered.

Let's say you borrow $10000 and need to repay it over one year just to make it as simlpe as possible. If the interest rate is 6.8%, then this means that you will end up repaying $10,372.15 dollars which over 12 months means the total interest is $372.15.

Now let's see what difference increasing the term makes...

If you change that loan of $10000 to run over, say, ten years, then suddenly the total amount repaid is almost $14,000 and the interest is a whopping $3,809.66 in total, just showing how the term of the loan lengthening really increases the total amount you repay, whilst reducing the size of each individual monthly payment because there are so many more of them in total.

There are useful online loan calculators if you want to perform your own calculations, and these are a great way of getting a good feel for what the numbers mean and what an adjustment in each element is likely to mean practically for you.

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