What Increases Your Total Loan Balance?

When you take out a loan, it’s essential to understand how slowly or quickly your loan balance can grow. That’s why keeping track of your debt is important. It’s also important to know all the factors that can potentially increase your total loan balance.

Compound Interest
Compound interest is the interest you are charged on both the principal loan balance and the interest that has accumulated over time. This means that the amount you’ll be paying back will continually grow as the interest accumulates, increasing your total loan balance.

Late Fees
One of the fastest ways to increase your total loan balance is to incur late payment fees. These are charges added to your loan balance when you fail to meet your repayment obligations. Even if you only miss a payment or two, the added fees can affect the total amount due.

Unpaid Interest
If you miss payments, it’s important to understand the effect a late fee can have on your loan balance, even if the amount of the fee itself is small. Oftentimes, unpaid interest is added to the loan balance when a payment has been missed. This interest accumulates over time as an extra charge and can quickly increase the size of your loan balance if it is not taken care of.

Additional Loan Balance Fees
The loan agreement you enter into may also contain specific provisions for additional loan balance fees, such as legal fees, collection fees and more. Make sure you’re aware of all the fees associated with the loan before signing it so that you can account for any extra charges that may be added to your loan balance.

Rolling Over the Loan
If you don’t have the means to pay off your loan in full, you may be tempted to roll it over. This will reset the loan term, usually at a new, higher interest rate, and can increase your total loan balance significantly.

Understanding how your total loan balance may increase can help you be better prepared to make payment arrangements that work for you. Knowing which factors have the potential to increase your loan balance can also be helpful. Make sure to ask your loan provider for a full list of all extra fees and charges that may be added to your loan balance if you ever find yourself in a tight financial situation.