What is repayment and how it works for payday loans

When you apply for a payday loan online for the first time there are many terms that seem incomprehensible. One of the most ambiguous is “amortization”, because it can be used both in an accounting and economic context with different meanings.

As we know that an informed borrower is worth two, we want to help them have all the possible knowledge at hand. Next, we will explain what amortization is, how it works, and how it affects your loan applications.

What is depreciation in accounting and economics?

What is depreciation in accounting and economics?

In accounting, the direct reduction of an asset is known as amortization. This depreciation can also refer to the expenses that are established in the profit and loss accounts.

There is also another amortization concept that applies to accounting. In this case, expenses are placed in the balance sheet so as not to decrease the asset.

The meaning of amortization varies slightly when it comes to the financial sector. This refers to the payment in installments of the requested amount of a loan. Simply put, the repayment of a debt refers to what is being paid.

That is why you will see that many online loan companies use this term when it comes to paying the requested amount before the deadline. Because you repay the debt to stop paying more interest.

In many cases, debt repayment is linked to an extra commission charge. Compare the credits of the different financiers to find the best repayment offer.

Types of amortization

Asset depreciation

It refers to the assets acquired by a company, and their depreciation over time. This is the type of accounting amortization. Companies seek to invest in assets whose amortization (loss of initial value) occurs over a long period of time.

Amortization of liabilities

This is the type that applies to financial products. It refers to the repayment of the loan amount, not counting the expenses generated by interest.

Amortization in bank loans

The repayment in bank loans refers to the refund of the requested amount. This can be returned in the following ways:

  • Payment of the requested amount in installments, plus interest applied to the value of the amount.
  • One-time payment, is the typical repayment in mini-credits.
  • Payment of interest only on a monthly basis, and at the end of the term, pay the amount corresponding to the requested amount.
  • Monthly and uniform payments where the same amount is always paid in interest and in amortization.
  • Uneven payments where the monthly amount to be returned will depend on the financial capacity we have.

French amortization system

French amortization system

It is the most used amortization method in the financial market. It involves paying the debt linearly with a single monthly installment from which interest is deducted and the payment of the requested amount.

One of the main characteristics of the French repayment system is that the interest rate is paid based on the amount of the loan to be repaid (repaid). That amount decreases with the payment of fee, and likewise the interest also decreases.

Search well what are all the methods and systems to pay the loan successfully and avoid problems.

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