In this article, we’re answering “What increases your total loan balance?” This is an important consideration for anyone with outstanding debt, whether that be personal loans, mortgages, credit, or student loans.
We’ll share a number of what that loan balance increases and answer a few common questions that we receive from our members on this topic.
This article is part of our free series on banking and financing, including how to find an overseas mortgage to open remotely around the world.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- What Increases Your Total Loan Balance?
- Three Ways to Increase Your Total Loan Balance
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
What Increases Your Total Loan Balance?
Total loan balance will increase when the borrower misses monthly payments, resulting in higher accrued interest. On the other hand, increasing the amount of debt either through refinancing or borrowing will also increase the total loan balance.
That said, if an individual meets the loan terms and conditions, continues to fulfill their loan repayment obligations over the loan term, and pays down the principal and the interest payments, the loan balance will not increase.
Instead, by fulfilling their commitments as a borrower, they will increase their credit score through positive payment history. And, in doing so, they will both pay down their debt and reduce their borrowing costs and the impact of compound interest when they require another loan in the future.
In the next section of the article, we’ll look at three ways that can increase your total loan balance.
Three Ways to Increase Your Total Loan Balance
If you have any concerns about paying off your debt at some point in the future, it’s important to know the ways that you can increase your total loan balance. With this in mind, we outline three key ways to increase total loan balance below along with a few additional methods you should be aware of.
Borrow More or Loan Refinancing
If you decide to increase the amount of debt that you borrow or refinance your existing debt, you will increase your total loan balance. In doing so, you are extending the life of the loan and the total amount owed, which (depending on the interest rate) typically results in paying considerably more in interest over the loan term.
Pay Less Than the Total Loan Minimum Payment
If you do not pay the minimum monthly payment for a loan, the remaining balance will be added to the outstanding balance of the loan. Additionally, you will likely be charged fees and interest which will also continue to accrue, contributing to the total outstanding balance that you owe the lender.
Miss or Defer Payments
If you miss or defer payments to your loan provider, the loan balance will increase as interest continues to accrue. In fact, if you have a student loan that offers an initial grace period before payments begin, the total loan balance will still continue to increase because interest will continue to compound during this time.
Other Ways to Increase Loan Balances
There are a number of different ways to increase loan balance, not the least of which is accumulating more debt. But, more specifically, any repayment program that allows you to defer part or all of your payment typically results in a total loan balance increasing. This is because, during these periods of lower repayment, interest continues to accrue. Likewise, extending the repayment term of a loan will also have the same results, increasing the time it takes to repay the loan and increasing the total loan balance that will need to be repaid.
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Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into what increases your total loan balance. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
What Is the Total Loan Balance?
Total loan balance refers to the total amount of money (outstanding balance) that a borrower needs to pay a lender. This number includes the principal amount borrowed, interest payments, any premiums, and other applicable charges.
Does Interest Accrual Increase Your Total Loan Balance?
Yes, interest accrual increases your total loan balance. This is true whether you have official permission to defer payments or you are in a grace period prior to repayments starting. During these periods of time, interest on the total outstanding balance will continue to compound, increasing the total amount the borrower needs to repay to the lender.
How Can You Reduce Your Total Loan Cost?
You can reduce your total loan cost by paying more than the minimum required payment on the loan each month. The total loan cost will decrease faster the more money you add to the payment above the minimum required payment amount.
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