About Personal Loans

Are personal loans serial loans or annuity loans?

Most personal loans are annuity loans. An annuity is characterized by the fact that you pay the exact same amount each month (both interests, fees and installments). Note that if you have a floating interest rate on the loan, however, this amount can change up or down, depending on how the interest rate in the money markets go. All changes in interest rates will be disclosed in advance.

The advantage of annuity loans is the predictability. You know every month what to pay since you pay exactly the same amount. Thus it is easier to know how much you can spend each month on other things. Secondly, with annuity loans you may benefit from high interest expenditures in the beginning of the loan period. This however depends whether interests on personal loans are deductible in your state. Please contact your tax attorney or auditor if this is the case for your state.

A serial loan on the other hand is characterized by the fact that all installments are equal, while interest rates are lower for each month since your total debt will be lower. For instance if you borrow $12,000 for 10 years, you will pay $100 in installments every month, plus interests and fees.