The monthly payments or instalments you pay the bank usually comprise both principal or capital and interest.

The size of your payments depends on: 

  • The amount you borrowed (the principal)
  • The interest rate
  • The term of the loan
  • The calculation method

Loans are usually repaid in fixed monthly instalments (the “constant payment method”).

Various payment alternatives exist for a line of credit, including:

  • Payment of periodic instalments comprising interest calculated only on the capital advanced or drawn down at the time, with repayment of the borrowed amount at the end of the period
  • Payment of periodic instalments comprising interest at agreed intervals (on a quarterly, six-monthly or annual basis), repayment of any capital in excess of the credit limit, and repayment of the remainder at the end of the period.
  • Payment of a fixed minimum instalment, usually each calendar month. The available capital is often increased by the repaid amount. This is known as a “revolving credit”, and is a common form of consumer credit.
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