What is a Principal and Interest loan?
A Principle & Interest Repayment Loan is where your repayments are calculated from day one, to pay your loan off over a term (usually 30 years) including the interest which is charged during that period. As opposed to an interest only loan is a loan which only charges interest based on the balance of your loan. The interest only term is set when you take out your loan, and usually ranges from 1 –10 years.
Positives of a Principal and Interest loan
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– Essentially a “forced saving” repayment which means you are paying your loan off from day one.
– If you pay the bare minimum, your pay less interest over the term than an interest only loan.
– Your interest rate can be cheaper in some circumstances.
– You may be able to borrow more than you can on an interest only loan.
Possible negatives of a Principal and Interest loan
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– Your limit reduces, therefore reducing the amount you can redraw.
– Your repayments are higher than interest only.
– This can be unsuitable for investment loans.
Choosing the type of loan for your situation isn’t always an easy call and depends on your financial situation and your goals so if you’re considering this as a financing option and want to learn more, one of our Peasy brokers would be more than happy to walk you through the process and support you along the way, making it Easy, Peasy.
If you want to find out more about anything you’ve seen here or would just like a chat then drop us a line on hello@peasy.com.au or call 1800 3 Peasy (73279).