Loan Repayment Plans You Should Consider

Loans are a necessity for those who need quick money. But what happens when you can’t pay them back? You could be stuck with a large amount of debt that you can’t repay, and the interest would also start to go up.

That is why it’s necessary to consider a loan repayment plan to get rid of the debt. There are many options available, like payments over time and others. They offer lower interest rates or no interest at all.

In this article, we will walk you through the process of finding a loan repayment plan. You will also find resources to help you figure out what kind of plan would be best for you.

The idea of a budget-friendly loan repayment plan means different things to different people. For some, it could mean a lower monthly payment or a shorter repayment period. For others, it could mean lower interest rates or a life without stress where they don’t have to worry about missing their payments monthly. Whatever your definition may be, there is one thing that every person has in common – they want the best repayment plan possible.

What are the benefits of paying off the loan?

  • No one wants unwanted baggage of debt. It is always better to pay off the loan and free yourself from the burden and stress. CreditNinja makes it clear that repaying a loan results in fewer obligations that keep you up at night.
  • Paying off debt at an earlier stage will result in you paying less interest in the long run. It’s particularly true for high-interest loans when you pay them off sooner. When you have paid off your debt, you can put more money into savings.
  • Repayment improves a credit score. Paying off a loan can also lower your debt-to-income ratio, which lenders use to determine your creditworthiness. You may qualify for better mortgages if you pay off a personal or auto loan before applying for a mortgage.

What Loan Repayment Plans can you consider?

The repayment plan you choose depends on your financial goals. The features of each repayment plan vary, so deciding on a repayment plan requires a clear mind.

Standard Repayment Plan

Standard loan repayment plans require equal payments every month for ten years. You pay less interest with the standard repayment plan and finish repaying your debt more quickly than the other repayment plans. The standard repayment plan is automatically selected when you enter repayment. It is best suitable if you aim to pay less interest.

Extended Repayment

Similar to the standard repayment plan, but with a loan term of 12 to 30 years based on the total loan amount. As the payment term gets extended, the amount repaid over the loan term increases, but the amount of the monthly payment decreases.

Graduated Repayment

In contrast to the standard or extended repayment plans, this plan starts with lower payments, each of which increases over time. Depending on the amount borrowed, the loan term is between 12 to 30 years.

The maximum monthly payment under the graduated repayment plan can’t be less than 50% and more than 150%. Usually, the monthly payment must cover the interest accrued and the minimum amount of $25.

Income-Contingent Repayment

Borrowers’ income and total debts determine how much they have to repay under the income-contingent repayment plan. Each year, the borrower’s income determines the amount of the monthly payment. Maximum loan terms are 25 years. Upon completion of 25 years, all remaining loan balance gets discharged. However, in current law, the remainder of the loan after 25 years is taxable. Plus, there is a $5 minimum payment per month, and this option is available only to borrowers of Direct Loans.

Income-Sensitive Repayment

Borrowers who qualify for FFELP can choose income-sensitive repayment instead of income-contingent, which ties the monthly payments to a percentage of their gross monthly income, and the loan lasts for ten years.

Income-Based Repayment

As with income-contingent repayment plans, the income-based repayment plan sets monthly payments at a lower percentage of a defined income.