How is interest applied on a loan and how do repayments affect the remaining outstanding debt?

Published on: 17 July, 2023

Updated: 18 October, 2023

We have two types of loans at Pigeon - Simple & Compound Interest loans.

For Simple Interest loans, making payments earlier or later than expected does not change the interest amount on the loan at all, so there are no advantages or disadvantages to paying off your loan early or late with these types of loans. For any Simple Interest loans created and managed on our platform, all interest is calculated and applied to the entirety of the loan at the beginning of our process and spread evenly throughout the loan.

For Compound Interest, making earlier payments will reflect on interest and reduce the amount that accrues over time. In that same light, making payments later than expected on a Compound interest loan will cause more interest to accrue over time. If you are working with a Compound Interest loan - interest on loans is compounded monthly at Pigeon.

Special Note: When choosing to import a loan rather than create one from scratch. We do not calculate or recalculate interest for your loans. Importing a loan simply allows you to designate the type of interest and your interest rate for documentation purposes only - there are no additions or subtractions of interest to outstanding debt applied to an imported loan.

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