Repayment Plans

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					REPAYMENT PLANS
Let’s brainstorm!




       What are
      repayment
        plans?
           Defining the term
           ‘Repayment Plan’
Repayment plan refers to the type of agreement which
one has to follow when paying back a credit facility,
such as a loan or overdraft.

 The choice of a repayment plan will depend on various
factors, mainly:
- One’s income

- The amount to be borrowed

- The interest rates and the loan period

- Particular services offered by different banks.
What should be considered when
 choosing a repayment plan?
    One should choose a repayment plan which fits
    best one’s financial situation.

    Before making the final decision one should:
     Define his or her financial goals

     Calculate available funds (now and in the
      future)
     Develop a realistic budget plan

     Determine how much he or she can afford to
      pay each month.
                  Activity

   Use the worksheet provided to summarise
information about the different repayment plans
   which will be outlined in this presentation.
Take note of the advantages and disadvantages
           of each repayment plan.
      Types of repayment plans


   Standard repayment
   Extended repayment
   Graduated repayment
   Income-based repayment
           Standard Repayment
In this repayment plan the monthly payment amount is
fixed.
   This means that the same minimum payment is due each
   month and will remain so till the end of the loan term.

Some features include:
 Maximum repayment period is short

 Results in lowest amount of total interest paid

 Requires the highest initial monthly payment.
         Extended Repayment
This plan is similar to the Standard Repayment, but
allows a longer loan term.
   The term length will depend on the total amount
   borrowed.

Some features include:
 A longer period to pay back the loan

 Reduced size of payments

 Increased total amount repaid over the lifetime of the
  loan due to interest.
        Graduated Repayment

In this repayment plan, the payments start low and then
increase in amount in one or more increments over time.

Some features include:
 Low repayment amount in the initial months or years

 A short maximum repayment period

 Higher cost of interest paid when compared to the
  Standard Repayment plan.
     Income-Based Repayment
This repayment plan is based on a person’s income, as
well as the household size.

Some features include:
 Repayment period can be over a long period of time
  (e.g. Up to 40 years)
 A monthly payment amount that is affordable for the
  person’s life situation
 Higher cost of interest paid over the term of the loan
  when compared to some other repayment plans.
To successfully manage
   loan repayment...


       What are the factors
    you should consider and
  the steps you should follow?
    To successfully manage loan
     repayment, you should ...
   Define your short- and long-term financial goals
   Know your income and expenses
   Know how much you have to repay and to whom
   Understand the terms and conditions of your loan/s
   Select the repayment plan that best achieves your goals,
    given what you can afford to pay each month
   Develop an affordable budget plan and estimate how
    much you can afford to pay each month on your debt/s
   Keep good financial records
                            Coping with
                            repayments

Read and discuss the following case study
    Maria and Patrick have been paying their home loan for eight
    years. They also have a 3-year-old son who has just started
    attending a private school. Patrick is about to loose his job and
    due to this they will no longer be able to meet their monthly
    home loan repayments. What are their options?

   What will happen if they fall back on their
    repayments?
   Whom should they refer to for advice?

				
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posted:7/26/2011
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