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What are the Different Types of Repayment Plans?

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  • Written By: B. Miller
  • Edited By: Andrew Jones
  • Last Modified Date: 26 July 2019
  • Copyright Protected:
    2003-2019
    Conjecture Corporation
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There are a number of different repayment plans for different loans available, depending on such factors as the purpose, amount, and terms of the loan, as well as the income status of the borrower in some cases. Fixed monthly payments, interest-only payments, and income-based repayment plans are all different options offered to borrowers, but keep in mind that every lender may not offer these options. It is best to choose a repayment plan that will allow the loan to be paid off as soon as possible, even if this makes the payment slightly higher.

Repayment plans for student loans are some of the most varied. In many cases, repayment on student loans does not begin until after the student finishes school, but interest continues to accrue. Then, when it is time to repay the loan, the student needs to decide whether he or she wants a fixed monthly payment until the loan is paid off, or would rather a graduated payment plan. These repayment plans sometimes allow students to make lower, interest-only payments for the first one to five years after graduation, after which time the monthly payment amount will increase to the standard principal amount plus interest.

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It is is important to learn about these student loan repayment plans ahead of time. In addition, making interest payments while in school can help prevent the interest from being capitalized into the loan, and can decrease the amount paid over time. Some lenders also offer income-based repayment options. Repayment plans for auto loans or personal loans are typically fairly straightforward, and will include a fixed monthly payment with a percentage of interest and a percentage of principal until the loan is paid off. Mortgages offer a number of different repayment plans, however.

In a standard mortgage with a fixed interest rate, the monthly payment remains the same throughout the entire life of the mortgage, but over time the amount that goes to interest decreases while the amount that goes to principal increases. Some banks offer interest only mortgages, allowing borrowers to make interest only payments for the first few years of the mortgage. This usually culminates in a "balloon" payment at the end of the interest only period, which can be quite a lot if one is not ready for it. Another option is simply to adjust the payment schedule of the mortgage; making biweekly rather than monthly payments can pay off the interest more quickly and reduce the amount paid over time. These are just a few of the many possible repayment plans available.

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