What is a Depreciable Credit?
A depreciable credit is a credit category that has the particularity of seeing the amount of its capital repaid gradually over time.
How does the depreciable credit work?
As part of a depreciable credit, the share of the repayment of principal and interest will vary over the term of the loan. In concrete terms, the borrower will repay relatively high interest at the beginning of the loan. On the other hand, as capital has been repaid, interest will become lower and lower. In this way, at the end of the loan, the borrower will only repay the principal, since a large portion of the interest has already been repaid at the beginning of the loan.
Difference between fixed rate credit and variable rate credit
In terms of credit, two main categories are distinguished according to the rates applied: fixed rate and variable rate loans. Interest rates are the main levers of remuneration of banking or credit institutions. Fixed rate depreciable credits are those for which the borrower agrees to pay an invariable rate from the beginning to the end of its borrowing period, regardless of the variation in interest rates charged. On the contrary, the variable rate amortizing credit is the credit by which the borrower agrees to pay a rate that will vary over time, up or down depending on the context.
What is the impact of the choice of rates on monthly payments?
The choice of rate will have an effect on the repayment of the loan. With a fixed rate loan, the repayment amount will be the same from the beginning to the end of the loan. In the case of a variable rate loan, on the other hand, the amount of the repayment may vary depending on whether rates rise or fall. Similarly, the repayment period can be adjusted. Be that as it may, the stakes of the amortizable credit are found in different types of credits, whether for example real estate loans or consumer loans.