Several factors can cause a total loan balance to grow beyond the original principal amount. Accrued interest is the primary driver, as it accumulates on the unpaid principal over time, especially if payments only cover minimum amounts or interest compounds.
Key Contributors
- Unpaid interest capitalization : During deferment, forbearance, or grace periods (common with student loans), interest adds to the principal, leading to interest on interest.
- Late or missed payments : These trigger fees and penalties that directly add to the balance.
- Variable interest rates : Rising rates increase the interest accruing each period, particularly on adjustable loans like some mortgages.
Other Increases
Additional borrowing on revolving credit lines or new disbursements raises the principal. Extending repayment terms allows more time for interest to build, even if monthly payments drop. Refinancing mishaps or calculation errors can occasionally inflate the balance unexpectedly.
