A linear loan is a loan where the monthly repayment is evenly distributed over the term of the loan. This means that the same amount of repayment is made every month. A linear loan therefore indicates the form of repayment. Suppose someone borrows 10,000 and wants to pay it off in 5 years. 5 years is a total of 60 months. Then the repayment is USD 10,000 / 60 = USD 166.67 per month. You have to pay interest on an outstanding loan. With a linear loan, the principal (the outstanding amount) is the highest at the beginning. In the beginning, someone with a linear loan must pay the most interest. The further the loan is repaid, the lower the interest amount. At the end of the term, the loan is repaid and no interest has to be paid.
What are the pros and cons of a linear loan?
The big advantage of a linear loan is that you have the certainty that you have repaid your loan at the end of the term. A linear loan is a well-arranged loan because you know exactly what you repay each month and you still have outstanding. In addition, your monthly charges will decrease each month. This can be an advantage if you expect a reduction in income. This is also the disadvantage. A linear loan is a lot more expensive at the start of the term than at the end. This can be disadvantageous for starters, for example, who expect to earn more in the future.
Is a linear loan a suitable loan?
A linear loan is therefore actually a loan with a certain repayment form. Whether this is the most suitable form of repayment is very person-dependent. This could be a suitable form of borrowing if you expect to have less income in the future. We are happy to advise you on the most suitable loan form for you. We will then try to find out your situation and can provide you with completely free loan advice. We compare loans from different lenders and are aware of discounts they give in a specific situation, you can benefit from this! Request a free loan recommendation.