In terms of credit, there are two main categories of loans: the amortizable loan and the loan in fine. Each has advantages and disadvantages and corresponds to certain types of profiles in priority. Here’s what you need to know about the depreciable loan.
What is depreciable loan?
In credit terms, the amortizing loan is a loan or credit granted by a creditor to a debtor, under which repayment of the principal is made in installments over time. With this type of loan, the debtor pays monthly installments that include not only part of the capital but also interest on the loan.
The amount of interest is predominant over the amount of principal at the beginning of repayment, and the trend reverses over repayments. The amortizable loan is thus opposed to the credit in fine which, as the name implies, implies repayment of the capital at the end of the loan, in one go.
The advantages and disadvantages of the amortising loan
The benefits of the amortizable loan are various:
• repayment of capital is made in installments over time;
• the amortizable loan has a financial interest in relation to the loan in fine for which the amount of interest is higher;
• the depreciable loan is simpler to implement than the loan in fine insofar as the banks do not demand the same guarantees from the debtors.
The disadvantages of the amortizable loan are:
• the maturities of the amortizing loan are heavier than those of the end-of-term loan insofar as the payment of the interest is accompanied by the payment of part of the capital;
• the extension of the loan term, if it increases the repayment capacity of the debtor, is accompanied by an additional cost due to interest rates that grow over the long term.
Who is the depreciable loan best suited to?
The amortizing loan is perfect for low-income households who want to buy their principal residence on credit. On the other hand, households with high incomes wishing to acquire a property with a view to renting it will be more likely to move towards lending in fine.