Loan Repayment Strategies 2026

"Amortizing payment? Equal principal payment? What's the difference?" "Which method pays less interest?"

Mortgage, personal loan, student loan... The total interest can vary by millions to tens of millions of won depending on the repayment method. Find the optimal repayment strategy with this guide.

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Three Loan Repayment Methods

1. Amortizing Payment (Equal Payment)

Pay the same total amount (principal + interest) every month

Characteristics:
- Same monthly payment
- Early payments: Higher interest portion
- Later payments: Higher principal portion

2. Equal Principal Payment

Pay the same principal amount monthly + interest on remaining balance

Characteristics:
- Monthly payment decreases over time
- Early payments: Higher amounts
- Lower total interest

3. Bullet Repayment (Interest Only)

Pay only interest and repay full principal at maturity

Characteristics:
- Minimum monthly payment
- Maximum total interest
- Need to prepare principal

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Repayment Method Comparison

Example Conditions

Loan amount: 100 million won
Interest rate: 5% annually
Period: 10 years (120 months)

Comparison Table

Key Differences

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Amortizing Payment Details

Calculation Formula

Monthly payment = Principal × [r(1+r)^n] / [(1+r)^n - 1]

r = Monthly interest rate (annual rate / 12)
n = Total number of months

Repayment Schedule Example

100 million won, 5% annual, 10 years

Early payments have more interest; later payments have higher principal repayment.

Pros and Cons

Pros:

• Same amount monthly for easy budgeting
• Lower initial burden
• Default method for most loan products

Cons:

• Higher total interest
• Slow principal repayment early on
• May be disadvantageous for early repayment

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Equal Principal Payment Details

Calculation Formula

Monthly principal = Total principal / Number of months
Monthly interest = Remaining principal × Monthly interest rate
Monthly payment = Monthly principal + Monthly interest

Repayment Schedule Example

100 million won, 5% annual, 10 years

Principal is the same monthly; decreasing interest reduces total payment

Pros and Cons

Pros:

• Lower total interest
• Faster principal repayment
• Burden decreases over time

Cons:

• High initial payments
• Requires initial financial capacity
• Some financial institutions don't offer it

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Recommendations by Situation

When Amortizing Payment is Better

1. Fixed income earners

   • Salary doesn't change much
   • Budget management convenience is priority

2. Limited initial funds

   • Not much money available
   • Minimize early burden

3. Investment return > Loan interest

   • Invest surplus funds
   • Capture the spread

When Equal Principal Payment is Better

1. Expected income growth

   • Early career
   • Promotion/job change planned

2. Total interest reduction priority

   • Long-term loans (20+ years)
   • Larger amounts = greater effect

3. Early repayment planned

   • Using bonuses, severance
   • Goal of fast repayment

When Bullet Repayment is Better

1. Business owners/Self-employed

   • Large cash flow fluctuations
   • Expected lump sum income

2. Short-term loans

   • 1-2 year bridge loan
   • Planning to sell property

3. Investment leverage

   • Asset return > Loan interest
   • Professional investors

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Early Repayment Strategy

Early Repayment Effect

100 million won, 5% annual, 10 years, amortizing

The earlier you repay, the greater the interest savings.

Prepayment Penalties

Typical penalty rates:
- Within 3 years: 1.0-1.5%
- After 3 years: 0.5-1.0%
- After 5 years: Waived or minimal

Example calculation:
50M won early repayment, 1% penalty
= 50M × 1% = 500,000 won

Early Repayment vs Investment

Decision criteria: Loan rate vs Investment return

Loan rate 5%, Expected investment return 8%
→ Investment is better (check after-tax returns)

Loan rate 7%, Expected investment return 5%
→ Early repayment is better

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Loan Interest Rate Types

Fixed vs Variable Rate

Hybrid Rate

Example: 5 years fixed + variable thereafter

Pros:
- Initial stability
- Medium-level rate

Cons:
- Uncertainty after 5 years

2026 Rate Outlook

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Practical Calculation Examples

Mortgage Comparison

Conditions: 300 million won, 4.5% annual, 30 years

Equal principal saves 44 million won in interest over 30 years!

Personal Loan Comparison

Conditions: 50 million won, 8% annual, 5 years

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Loan Repayment Tips

1. Use Extra Money for Principal

Bonus, performance pay → Principal repayment
→ Interest savings + Shorter repayment period

2. Consider Loan Refinancing

Existing rate 5% → New rate 4%
100M won basis = 1M won annual savings

But, verify fees/costs first

3. Adjust Payment Date

Set payment date right after payday
→ Prevent late payments
→ Use automatic transfers

4. Maintain Emergency Fund

Keep 6 months of living expenses as reserve
→ No excessive early repayment
→ Prevent needing to re-borrow in emergencies

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FAQ

Q1: Which repayment method is better?

A: There's no single answer.

• Lower initial burden → Amortizing
• Lower total interest → Equal principal
• Choose based on your personal situation

Q2: When are prepayment penalties waived?

A: Usually waived or reduced after 3 years. Always check contract terms.

Q3: Can I change from amortizing to equal principal?

A: Depends on the financial institution. Usually involves fees and may be treated as a new contract.

Q4: What is the interest rate reduction request right?

A: The right to request rate reduction when credit rating improves or income increases. Can apply once per year; 0.3-0.5%p reduction cases are common.

Q5: When is refinancing beneficial?

A: Consider when rate difference is 1%p or more and remaining period is 5+ years. Calculate fees and costs to verify actual benefit.

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Using the Loan Calculator

Check with Online Calculator

At Loan Calculator:

1. Enter loan amount
2. Enter interest rate
3. Enter period
4. Select repayment method
5. View repayment schedule

Comparative Analysis

Amortizing vs Equal principal
→ Check total interest difference
→ Check monthly payment range
→ Choose the method that suits you

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Conclusion

Key loan repayment strategies:

1. Amortizing: Stable, higher total interest
2. Equal Principal: Initial burden, lower total interest
3. Early Repayment: The earlier, the greater the effect
4. Rate Management: Refinancing, rate reduction rights
5. Reserve Fund: Repay only after securing 6 months of expenses

Repaying loans wisely is also a strategy.

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