Loans are a common access to finance, and interest on loans is a cost to the borrower. So, what about the interest on the loan? Analysed from several angles:

I. How does interest on loans count

1. Equivalent principal method

Equivalent principal method is the usual method of interest-bearing loans by which banks repay the principal and interest on a monthly basis over a continuous repayment period, and therefore the same amount at a time. Interest on the loan is calculated by multiplying the principal rate by the corresponding number of days, and total interest is equal to the monthly repayment period multiplied by the repayment period less the principal amount。

2. Equivalent principal method

The principal equivalent method is the optimization of the principal equivalent method, which divides the average repayment amount between principal and interest in a decreasing sequence over a continuous repayment period. In this way, the monthly interest payable is gradually reduced and the total interest during the repayment period is less than the equivalent interest rate method, which makes it more economical。

Factors affecting the calculation of interest on loans

1. Interest rate on loans

The interest rate of the loan is a major factor in determining interest on the loan, which is determined by national policy, the duration of the loan and the client base. Normally, the higher the interest rate, the more interest will be paid on repayment。

2. Duration of loans

The duration of the loan is also an important factor in the calculation of interest on the loan. Normally, the longer the duration of the loan, the more interest we need to pay, the shorter the duration of the loan, the smaller the total amount of interest to be paid。

3. Amount of loans

The amount of the loan will also affect the calculation of the interest on the loan, and usually the larger the amount of the loan, the greater the interest we need to pay。

III. How to reduce interest on loans

1. Increased down payment

Banks generally require a down payment rate, with a higher down payment rate that reduces interest on loans, so that as many down payments as possible are made prior to the loan, it reduces the volume of the entire amount and interest on repayments。

2. Increase credit scores

Increased credit scores can reduce interest on their loans. Before a loan is granted, a credit-receiving institution can be consulted for its credit record and its interest rate may be raised by optimizing the personal credit record。

3. Advance repayments

Early repayment is a good way to improve your credit record, and if you are able to repay the loan in advance, you can not only speed up the repayment, reduce interest on the loan, but also record your excellent repayment record, paving the way for future loans。