What Increases Your Total Loan Balance ?

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A loan is a financial product that allows you to borrow money from a lender. In return, you agree to repay the loan with interest over a specified period of time. The loan balance is the amount you owe to the lender.

Importance of understanding loan balances: Important to understand the loan balances, as it have an important impact on your financial health. High Loan balance can make your monthly repayment difficult, this can lead to late fees, penalties and even default. From this it will be difficult for you to take loans in future.

In this article we will different factor about ” What Increases Your Total Loan Balance ” , such as Interest,Late payments,Capitalised interest,Additional borrowing and Fees and penalties.

Types of Loans

Here are brief explanations of three common types of loans and how loan balances are determined for each:

Mortgage Loans

Mortgage Loans are taken to fulfil financial needs to purchase an real estate property. Loan balance for mortgage is calculated  by initial loan amount , interest rate and loan duration. They are typically long-term loans, with terms of 15 to 30 years. The borrower have to repay the loan regularly, which includes the principle amount and interest. As the time passes, and borrower repays loan, the balance loan will lower down slowly and finally the loan is re-payed  totally.

Personal Loans

Personal loans are generally used for various personal expenses such as debt consolidation, home improvement or unforeseen expenses. Personal loans typically have shorter terms than mortgages, with terms of 3 to 7 years. There is no collateral required required for taking this type of loan. The APR is is generally 5-25%.

Auto Loans

These are loans taken for purchasing automotive vehicle. Auto loans typically have terms of 3 to 7 years.The loan balance for an auto loan is determined by the initial loan amount, interest rate and loan term. In some cases, if the value of the vehicle depreciates faster than the loan can be repaid, the value of the vehicle may also impact the loan balance.

Student Loans

Student loan is designed for students to continue their higher studies.The loan balance for student loans is determined by the amount borrowed, the interest rate, and the repayment plan chosen. Student loans typically have long terms, with terms of 10 to 30 years. In some cases, the interest is charged when the student is studying in school or at the time of postponement of course. The repayment of loan begins, when the course is completed, and the repayment is generally on monthly basis including the principle amount and interest. As the repay the loan, the loan balance decreases and finally the loan is re-payed completely.

Home equity loan

A home equity loan is a type of loan that uses the equity in your home as collateral. Home Equity Loan is different from mortgage loan. The repayment period of of loan is generally 10-15 years and the APR is 5-10%.

Loan TypePurposeRepayment PeriodCollateralAPR
MortgagePurchase real estate15-30 yearsProperty3-6%
Personal loanDebt consolidation, home improvement, medical expenses3-7 yearsNone5-25%
Auto loanPurchase a vehicle3-7 yearsVehicle4-15%
Student loanFinance education10-30 yearsGovernment guarantee3-8%
Home equity loanHome improvement, debt consolidation10-15 yearsEquity in home5-10%

Principal Balance

Principle balance is that amount which is taken as loan. This is that amount which is still due after repayment. Every time you repay the loan the principle balance decreases.Factors affecting the principal balance of the loan include:

  • Loan Amount: Principle balance is related with loan balance amount. The higher the loan amount the higher will be the principle balance.
  • Repayment Conditions: The repayment conditions such as duration of loan and interest rates affects the principle balance also. The more the repayment duration, the more the interest you will be paying and more will be you principle balance.
  • Repayment: The amount of your payment will also affect the principal balance. The higher your payment, the faster the principal balance is reduced.

For Example, If you have taken a mortgage loan of $200,000 for 30 year with a interest rate of 5%. Your monthly repayment amount will be $1000. After 10 years, you might have payed a total of $50000., and your principle balance would be $150,000.

Keeping track of your principal is important,as helps you to assure that you are on right track for repaying the loan. Generally you check the monthly statement by logging in to your account online and verify your principle balance there.

What Increases Your Total Loan Balance ?

Here we wil discuss about some of the factors which definitely answer your question ” What Increases Your Total Loan Balance ? ” 

Interest Accrual

The process of adding up interest to Principle Balance is known as Interest Accrual. This depends on loan interest rate and the time passed after taking loan.

How does interest accrual affect the loan balance? There is important effect of interest accrual on loan balance. The longer the loan remains outstanding, the more interest accrues, and the higher the total loan balance.

How does interest rates affect loan balances over time? Interest Rates also have an important impact on loan balance. The more the interest rate, the more the interest will accrue and the higher will be the Total loan balance.

Strategies for minimising interest accrual:  There are some strategies that are used to minimise interest accrual and to decrease its effect on the total loan balance. It includes:

  • Making larger monthly payments. The more you pay towards the principal balance of your loan, the less interest will accrue.
  • Refinancing your loan with a lower interest rate. If you can refinance your loan with a lower interest rate, you will save money on interest over the life of the loan.
  • Paying off your loan early. If you can pay off your loan early, you will save a significant amount of money on interest.

Loan Fees and Charges

We have discussed some of the general charges and the charges related to loan, how they can increase loan balance, and to talk to them and and some advice to be safe:

  • Origination fees: This is the one time fees taken as a cost of processing loan from borrower while applying for loan. Originality fees may be anywhere between 1% to 5%
  • Prepayment penalties: If the prepayment of loan is done then this is the charge taken from borrower. Prepayment penalties are calculated generally as percentage on the remaining balance of loan.
  • Late payment fees: This is the fees taken from the borrower for late repayment. Late fees may vary between $25 to $50.
  • Overdraft fees:  If you use Overdraft checking account for repayment then they may charge an over-drafting fees that may vary between $30 to $50 per overdraft.
  • Annual fees: This is the annual maintenance fees for maintaining you account. Which may also vary between $25 to $100.

Late Payments and Penalties

Here are some things , one should know about late payments and penalties:

  • Consequences of late payments: Late repayment can have an negative effect, which includes:
    • Late payment fees: If your payment is is delayed by 30 days then majority of lender’s would charge late payment penalty. This late payment fees may be between $25 to $50.
    • Increased interest: If you are paying late then the interest on you loan can be increased. This is because Lender will continue to charge interest on unpaid balance, even if you are not paying on time this will definitely increase you loan balance.
    • Damage to your credit score: If you are continuously not paying the loan on time , then it will have an negative effect on your credit score. And it will lead you to not getting loans in future. And it will also result in increase in interest rates of your loan.
    • Repossession: If You are not paying the loan on time then the lender can Repossession on the collateral. This might be your car, house or any other asset.
  • How late payments can increase the loan balance: Delayed repayment can also increase your loan  by some methods. First the late payment in added to your loan balance. Second Interest on your loan will be calculated on the unpaid balance, which will be higher for late payments. Third< if you are not paying the loan on time continuously  then your interest rates will be increased, which leads to increase in loan balance.

It’s important to make all of your loan payments on time to avoid these negative consequences. If you do miss a payment, it’s important to contact your lender as soon as possible to try to work out a payment arrangement.

Loan Consolidation

Loan consolidation is process to consolidate many loans in one loan. If you have loans of different interest rate, or you are struggling to make many payments every month then loan consolidation is best option for you.

  • Impact of loan consolidation on the total loan balance: The Impact of Loan consolidation on Total loan balance depends on some factors, which includes interest rate of principle loan, new loan duration and any charges associated to it. Consolidation, while, In general, Loan consolidation can help you save money on interest over the term of the loan.
  • Pros and cons of loan consolidation: Loan Consolidation have its own Pros and Cons, some of them are discussed below:


  • Lower interest rates: If you can get lower interest rate on new loan then you will save money on interest during the term of the loan.
  • Simpler monthly payments:  Instead of paying many payments every month, you only have to pay a single payment of new loan every month. This will make easy to create budget and manage your finances.
  • Improved credit score:  If you have good track record while paying the new loan, then it will help you to improve your credit score.


  • Fees: There might be many charges for consolidating the loan, such as principal fee or prepayment penalty.
  • Length of the loan: The length of new loan may be too large, which increases the chances of loan default. and also you might have to pay more interest.
  • Risk of default:  If you default from your new loan then you may loose consolidation.

Ultimately, loan consolidation is right option for you or not, it totally depends on your personal circumstances. If you are struggling to repay many payments every month or you have high interest rate loan, then loan consolidation may be best option for you to save your money. While always take advice form professional’s, before taking any decision.

Additional Borrowing

Here we have discussed things to know about Additional Borrowing and its effect.

  • How additional borrowing can increase the total loan balance: When you are taking new loans, you are basically adding up to your existing total loan balance. It means You have to pay more with time.
  • Implications of taking on new loans while still having existing balances: There are some implications for considering taking a new loan while maintaining an existing balance.
    • Increased monthly payments: If have many loans, and you have monthly repayment of each, then taking new loan will result in increased payment every month. This will also create pressure on your budget and paying on time will be difficult for you.
    • Increased interest charges: If you take new loan with higher rate of interest then your existing loan, so you will end up paying more interest over time. This is because the interest is calculated on loan balance, So high interest rate means, you have to pay higher interest every month.
    • Damage to your credit score: if you are facing difficulty in repaying , then it will result in damaging your credit score.This can make it more difficult to get approved for a loan in the future.

It important to consider carefully before taking additional loan. If you are not sure about whether your are able to repay loan or not, then it will be better to consult good financial adviser.

Frequently Asked Questions (FAQs)

What is the best way to reduce my total loan balance?

here are a few ways to reduce your total loan balance. Here are some of the most effective methods,Make extra payments,Refinance your loan,Pay off high-interest debt first,Consider a debt consolidation loan,Boost your income.

Can I negotiate loan fees to reduce the total loan balance?

Yes, you can negotiate loan fees to reduce the total loan balance. However, it is to be noted that lender is not bound to talk, so the possibility of success totally depends on your credit score, repayment history and many factors including amount of debt.

Is loan consolidation a good option for reducing the total loan balance?

Loan consolidation is process to consolidate many loans in one loan. If you have loans of different interest rate, or you are struggling to make many payments every month then loan consolidation is best option for you.


Finally, for better financial management you have to understand the important factors affecting increase in your loan balances. In this whole article we have discussed various factors which can affect your loan balances, such as Principal balance, interest accumulation, loan fees, late payments and economic factors. We have also discussed strategies to lower the loan balance such as loan consolidation, additional borrowing. By being aware of these factors and implementing sound financial practices, you can control your loan balances and work in the direction of minimising them. Remember, active steps and smart decision can make your financial future strong.

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