  What is Repayment in Payday Loans?- Example Pete borrows £10,000 at 5% over a three year period. He'll need to pay the £10,000, plus an additional £789.52 in interest. This will then be divided by 36 repayments, which he'll make monthly for three years. Pete will have to pay repayments of £299.70 a month to repay the loan in full. If Pete has a credit card his repayments would vary, based on how much money he had spent that month. All credit card providers insist that you repay at least the interest each month on the money you have outstanding, while a new law says you must also repay some of the money you have borrowed as well. A customer who always makes the minimum repayment on a credit card will take a long time to repay the money, as interest will continue to be charged on the outstanding balance each month. To use a credit card but not ever get charged interest you can make a repayment in full each month, paying off all of the money you have borrowed on the card in full each month. The repayment for many loans will stay the same throughout the term of the loan, unless you take out a variable rate loan. This is common on mortgages and will see someone take out a loan at a certain interest rate, which can then rise or fall based on the movement of the Bank of England base rate. The interest rate they are charged will affect the repayment they repay. - Example George borrows £100,000 over 25 years at 3% above the base rate. When he starts paying his loan back, the base rate is 0.5%, so George pays 3.5% interest on his loan. This means his monthly repayment is £500.62. If the base rate was to increase to 1.5%, then George would have to pay 4.5% interest, which would increase his repayments to £555.83. |
