Blended payments are a way of repaying a loan that sets equal monthly payments of principal and interest (blended) over an agreed-upon amortization period.
By contrast, in a principal + interest arrangement, the borrower pays back the same amount of principal each month, plus a steadily decreasing interest payment. This means the total amount paid each month is not equal—it actually declines over the amortization period.
With a blended payment loan the borrower will pay more total interest but get the advantage of predictable budgeting.
More about blended payments
In the example below, ABC Co. has a $100,000 loan with a 12-month amortization period and a fixed interest rate of 5%. As can be seen, the amount of interest paid gets lower over time, while the amount of principal paid increases. The payments are the same each month.
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