Commercial Equipment Finance: How Does a Repayment Plan Work?

Most likely you’re already familiar with what a repayment plan looks like. It’s a fixed monthly amount you pay back over an extended period of time, generally, three to five years. But did you know repayment plans operate differently depending on the loan type? If you have a commercial finance loan, knowing exactly what is asked of you is crucial to stay in good standing with your financial institution.

Federal student loan payments, for instance, can be tied to your income while mortgage lenders can offer you different options if you’ve fallen behind on payments and want to catch up.

In this article, we discuss how repayment plans work for business, and how to choose the best one for your needs.

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How a Repayment Plan Works

For many types of loans, a repayment plan refers to the monthly payment and loan term a lender assigns you. The amount you pay per month depends on how much you borrowed and the interest rate.

Personal loans: Similar to private student loans, you’ll generally repay personal loans in fixed monthly amounts, at an interest rate that depends on your credit score. Personal loan terms are often two to five years.

Business loans: If you’re trying to pay down some of your business debt, you might be wondering how long it will take to make the standard payment or what the impact might be if you increase the monthly payment each month. If you increase the monthly business loan payment in a simple interest type loan that does not have prepayment penalties, the amount of the increase typically gets applied directly to reducing the amount owed, or principal with this type of loan. Reducing the amount of money you owe will reduce your interest charges each month, as the interest rate will be applied only to the outstanding loan balance. An increase in your monthly payment will lessen the number of interest charges you will pay over the repayment period and shorten the number of months it will take to pay off the loan.

Commercial Equipment Finance: How Does a Repayment Plan Work?

Equipment Loans: Can be a great alternative that helps small business owners replace existing equipment or buy new equipment as it grows. If you’re a health care business, for example, you may use an equipment loan to pay for things like X-ray machines or infusion pumps. Typically, equipment loans require less documentation than other small business loans, so you can receive funding fairly quickly.

Commercial Equipment Loan Repayment Plan in Action

A repayment plan’s terms and benefits depend on the loan it’s attached to. When you choose the right repayment plan for your circumstances—you can ensure that paying back a loan won’t jeopardize your ability to meet the financial goals that matter most to you.

For any questions regarding our loan process, please call our office at 737-717-3100.

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