what is “interest repayment” and “principal repayment” in education loan?
i have been paying emi for my education loan for last ten months. For last 8 months the bank accounted the whole emi as “interest repayment”. But for last couple of months the emi is split into two and accounted as “interest repayment” and “principal repayment”. Does it mean anything ? Should I be concerened about it? How will it effect my repayment? Its a sbi education loan
Interest repayment — When your money goes toward repaying the interest on the loan
principal repayment — When your money goes toward repaying the original loan amount
Basically its a loan without compounding interest. You earn interest ONLY on the principal. So if you paid the principal off completely, even if you still owe $1million in interest, you won’t build up any more debt.
Example:
If you barrowed $100 and earn 10% interest on the loan at a time for the sake of being simple.
After one period you earn $10 interest. You now owe $110.
You pay them $20. Lets say that $20 is applied to the principal. You now owe $80 principal and $10 interest.
Next period you earn $8 in interest and owe $98. Because the 10% is applied only to the principal NOT to the interest earned.
