Tasaerälyhennys

Tasaerälyhennys, often translated as equal installment payment or annuity loan, is a common method for repaying a loan. In this repayment structure, the borrower makes fixed, regular payments over the life of the loan. Each payment consists of two parts: principal repayment and interest.

The key characteristic of tasaerälyhennys is that the total amount of each installment remains the same. However, the proportion of principal and interest within each installment changes over time. In the early stages of the loan, a larger portion of the payment goes towards interest, with a smaller amount reducing the principal balance. As the loan progresses, the interest portion gradually decreases, and a larger part of the fixed payment is applied to the principal.

This structure provides predictability for the borrower, as they know the exact amount they need to pay each period. It also simplifies budgeting. Lenders benefit from a consistent cash flow. The total repayment period and the interest rate are typically fixed at the outset of the loan agreement. Understanding how the principal and interest are allocated within each payment is crucial for borrowers to manage their debt effectively. This loan type is widely used for mortgages, car loans, and personal loans.