With what annuity payments are, let's try to understand this article. So, financial rent (annuity) refers to a schedule for the gradual repayment of a debt with interest on it. At the same time, payments are made in equal shares over the same time periods.
Lending options
Any type of loan may have a certain set of parameters that should not be overlooked, otherwise you can doom yourself to pay extra money to a banking institution. In practice, a large number of different parameters can be indicated in the contract.
The most famous among them are the following: the size of the down payment, the maximum amount of the loan body, the amount of the commission charged, as well as sanctions for early repayment of the loan. However, some conditions are important only in a certain period of time or are one-off. Others do not lose their relevance throughout the term of the loan agreement. For example, making a payment for an application that is charged once; Penalties for repaying a loan ahead of schedule only threaten the borrower for some time. In this case, the commission for servicing the account can be paid by the client before the end of the contract.
Types of loan repayment
A potential customer, when choosing a bank in which to take a loan, puts the interest rate in the first place. Often it is her and the banks themselves advertise. However, it must be remembered that the rate itself is not the main parameter in determining the total cost of a loan. Equally important is the type of repayment, which is presented in two versions: annuity and differentiated. Their main qualities will be discussed in more detail below.
The essence of annuity payments
An annuity loan payment is an alternative form of a differentiated loan repayment system. It differs in the manner in which the principal amount of the loan is paid in equal installments with the accrual of interest on the balance of the outstanding amount.
Despite the fact that a differentiated payment system can be classified as a classic, an increasing number of banking institutions are switching to paying off loans by annuity payments. This is, firstly, convenient for the banks themselves, as it allows you to get a significant benefit in interest.
Secondly, with this form of repayment of loans, customers easily remember or record the size of the payment. And you do not need to contact a banking institution on a monthly basis to determine the amount payable. Considering annuity and differentiated payments customers choose the first when planning an early repayment of a loan.
Use of the term “annuity” in other areas of management
What is annuity payments, you have to understand not only in the field of lending. These terms are known in other areas:
- annuity - an urgent loan of state importance, according to which the amount itself and interest on it should be paid annually;
- the term “annuity” is also used as a type of contract under which an individual with insurance after a certain period of time receives the right to pay the amounts established by the contract (for example, on retirement);
- and the last definition of annuity is the amount of regular insurance payments made over a specific period specified in the contract.
Scheduling payments
To understand what annuity payments are, you need to consider the schedule that is used to accumulate a certain amount at a particular point in time. Such a scheme is quite convenient due to the equivalence of contributions.
In general, the annuity payment formula is quite simple. It is represented by the sum of the so-called loan body and interest accrued for the current period. Moreover, the repayment process itself is divided into an annuity of prenumerando (payments at the very beginning of the first period) and postnumerando (payments at the end of the period).
Calculation of annuity payment
Consider several options for calculating the payment for each month on this system.
- Contacting the bank is the most convenient and easiest option for customers. Responsibilities of consultants of banking institutions include the provision of services for the calculation of such a payment.
- Credit calculator - a detailed calculation of the annuity payment is intended for active Internet users. Similar services are embedded in banking sites. This world practice is convenient in that the client has the opportunity to compare and analyze the offers of several banks without leaving home. It also serves as an effective tool to understand what annuity payments are. Universal calculators use different lending currencies. And exchange rates are constantly updated, so failures in their work are simply eliminated.
- There is a third way - an annuity payment calculation formula, which can be easily used with only a sheet of paper and a pencil. There is an opinion among customers that the banking formula, which will allow you to understand the size of the loan payment, is complicated. It is safe to say that using it is not necessary. There is a fairly accurate option, which is much simpler. Consider it below.
Determining the amount of monthly payment
When calculating the percentage component of an annuity payment, it is necessary to take the outstanding loan balance at a specific date, multiply it by the annual percentage and divide by 12 months (implies a year).
To determine the annuity payment on the loan, which will be used to pay off the debt, it is necessary to deduct the accrued interest from the monthly payment amount. It is important to remember that the payment received to repay the loan body depends on previous payments. Therefore, the schedule must be calculated sequentially, starting from the first payment.
In order to determine the overpayment for an annuity type loan, it is necessary to multiply the monthly payment by the number of months, and subtract the amount of the loan taken from the work received.
Pros of Annuity Lending
So, we determine the positive aspects of the type of lending under consideration. This repayment of annuity payments is advisable for customers who:
- Cannot make large payments monthly. Especially when it comes to the period after obtaining a loan. Considering annuity and differentiated payments, users choose the first type. His vivid example is mortgage lending, which involves large long-term loans, so payments in equal parts are quite convenient for customers.
- Due to the presence of a stable income, they calculate the family budget.
- They can successfully use an annuity payment, early repayment of the loan for which is most likely, or it is a small loan amount.
Many customers choose this particular scheme of loan repayment due to its simplicity: you just need to pay a constant monthly amount. And with a differentiated payment scheme, it is necessary to specify its size every month at the bank.
When choosing an annuity option, payments at the beginning of the contract period will be less than the same contributions according to a differentiated system. This is due to the repayment of the first interest on the loan, and only then his body itself.Therefore, customers with less solvency can get a loan with an annuity payment scheme.
However, with such seemingly undeniable merits, there are certain disadvantages.
Cons Annuity System
The main disadvantage of the annuity system for repaying the received loan is its significant rise in price. Let's consider in more detail. Such a high cost arises due to the fact that the client, under annuity, slowly repays the debt, which leads to the payment of large interest on the loan.
During the first months of the contract, the monthly amount of obligatory payment to a greater extent consists of a percentage, and only then of the loan body. However, there is a way out of this situation. You can take a loan from the bank according to the annuity system, and repay it according to the differentiated one (pay off the loan body before the due date). In this case, the annuity is converted into a differentiated form of credit.
Early repayment option
If desired, the client can repay the loan taken before the deadline, however, in this case, the following features should be taken into account. When choosing a differentiated system of debt repayment, the borrower is obliged to repay half of the principal debt, and with annuity - three quarters.
It is advisable to consider this statement as an example. A loan of 2 million rubles was taken, 900 thousand rubles have already been paid. Considering the structure of the repaid amount, you can see that 150 thousand rubles is the main debt, and 750 thousand rubles are interest that can no longer be repaid. Therefore, the question arises as to whether early repayment of the loan is necessary. In this case, you can not withdraw additional funds from the family budget (if it is a mortgage) or from a business, but simply continue to gradually repay the debt further.
Conclusion
Annuity lending allows you to pay smaller amounts on the loan body. This is a modern and quite convenient way, allowing you to get funds to customers who do not have the ability to repay debt through a differentiated system. However, it is necessary to provide for the accumulation of the necessary amount of cash to repay the loan body in the future.
