Monthly loan payments are the amount that a borrower must pay to the lender for the duration of the loan or until the debt is paid off.

The Heart of an Installment Loan

Monthly payments are essential to how loans operate as they are generally how borrowers pay off their debt. The types of monthly payments are highly variable and usually depend upon the type of loan. There are, however, different norms that one could expect to see depending on the loan.

A credit card minimum payment, for instance, usually calculates the amount of interest due—which is the interest rate times the remaining balance—and incorporates that amount into the payment. Typically, credit card payments are 2% of the balance plus interest.

Many installment loans, such as auto loans and mortgages, have specifically designed monthly payments that should pay off the loan by the end of its duration. These types of loans are referred to as fully-amortizing.

Paying the Loan Off

Each monthly payment consists of typically set installments that include the interest plus a little extra to reduce the balance. As the months go on, the balance is reduced, which lowers the interest. By the end of the loan, the owed amount should be zero.

However, some mortgages do not have monthly payments in this manner. Sometimes mortgages only allow interest-only payments for a short period of time before the balance can begin to be paid off.

The monthly payments of other loans can sometimes be affected by a down payment, which dramatically lowers the balance and thus can reduce the monthly payment.

It is always advisable to make sure you understand how the monthly payments for a loan operate before going into debt.

Learn More

To learn more financial loan terms, to learn more about how loans operate, or to apply for your own personal loan, visit LiftCredit.com.