Certain types of loans, such as mortgages, have the option of contributing an extra amount of money per month in installments, so that you can pay capital to your loan. This action is very convenient, because it gives a series of advantages that you will later end up thanking for having done, but it may also be very complicated at the moment.
For the reasons detailed previously, it is necessary to know how to identify when is the right time to make this fertilizer. In relation to a study on your current and future economic situation and dreams / prospects that you have in the short or long term.
Time x interests
The two factors that are balanced when you have a long-term loan and you are considering paying capital are: the time and the interest on the loan.
In terms of time, you have an advantage, we could be talking about a couple of years or more than a decade. As the term is so long, it helps you reduce the monthly payments you pay, which would be huge with a loan that you must repay in a few months. Time could even cause the amount you owe to become less significant than it was at the beginning.
Still, many people find the idea of paying principal on their loan attractive. It turns out that this can significantly reduce the time you have to pay and the total money that you end up returning to your lender. Well, it is well known that, especially in the first installments you pay, little is contributed to the capital and a lot to the interest, which is why the following month you continue to have interests of almost the same magnitude.
With just one month, where you pay a similar amount extra to the one that touches on that occasion, you will decrease the amount of interest for the next month and you will pay more capital. In the end, you could avoid a little more monthly payments.
Personal plans vs. pay your loan capital
The biggest inconvenience that can arise when those who pay capital to your loan is that, having the money available, you do not decide to do it, because you well know that you have other cats. Can't decide? Take into account the different scenarios that could arise:
- You have other debts to pay: it is a common case, you not only have to cancel that loan but you have to pay money to other individuals or entities. When they are immediate, short-term debts, do not hesitate and get out of it first, there will be an opportunity for the loan.
- You have not paid anything to your credit card: If you have a credit card and have not even paid the minimum amount yet, do not leave it for later. You will keep your card available for use. Paying capital to your loan is not a priority when you have other commitments.
- You do not have savings: if you do not have anything saved for something unforeseen, instead of paying capital, save it, you never know when it can be useful.
Be clear that you cannot pay all debts at the same time, one, then another.