What Is Negative Amortization?

Getting a personal loan or cash loans has become so easy and quick that it draws most of the people at times of financial crisis.

Negative Amortization

Negative amortization is a financial term. It is also known as NegAm. It refers to an amortization method in which only a smaller amount of the total interest is reimbursed by the borrower every month.

The amount due is then added to the total amount owed (principal) to the lender. This practice is generally agreed upon before the shortage of payment in order to avoid default on payment. Negative amortization is also called as deferred interest or Graduated Payment Mortgage (GPM). This method is followed in loans especially when the periodic payment fails to cover the interest amount that is due for that loan period.

As a result, the amount of unpaid interest increases the loan balance or principal. The major goal of this method is providing an affordable and flexible reimbursement method for the loan. The loan is written mostly in high cost areas. This is because of its flexible monthly payment plan which will generally be lower than other type of financing instruments.

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