Whats the difference between a Precalculated loan and a Periodically calculated loan?
The basic difference is that a precalculated interest loan has all the interest calculated right when you take out the loan. This means that if you pay any extra money into the loan to pay it off earlier you don’t actually save any money because you’re paying it off sooner. For example if you take out a 5000 dollar loan then you will be given a flat unchanging balance of perhaps 5500 to pay off over a set period (or sooner). A periodically calculated interest loan is what you would think as a typical mortgage or credit card. Interest is calculated and added periodically and the sooner you pay it off the less interest you incur. For example, if you borrow 5000 pounds on a credit card and the interest rate for the card is 12% then every month you will be charged 1% on the current balance. If you therefore pay off the loan in 1 year you pay a lot less interest than if you take 10 years to pay it off. This is similarly the case with a mortgage.
