What increases your total loan balance

what increases your total loan balance

Most people understand that loans come with interest rates and that you pay that back along with the principal. However, you may notice that your loan balance increases and may be curious and alarmed about why that is happening. There are a few different reasons why your loan balance can increase, and it will be important to know why. 

This article will focus primarily on student loans because these types of loans may change the most throughout their life and because they may impact the most people—43.6 million borrowers have federal student loan debt.1 However, most of the variables impact other kinds of private loans, such as no credit check loans and their balances as well. Below, you will find more information on factors that increase your total loan balance. 

Defining Capitalization When It Comes to Loans 

Capitalization is the accruing of interest that is added to the loan balance. With student loans, this can happen if there is a pause in required payments. For other loan options like a credit card cash advance, for example, the interest will start accruing interest immediately after, which will then be added to the payment—the capitalization process.  

Learning More About Interest Rate Options

Interest can come in different forms, which will also impact how a loan balance changes. Here is a breakdown of interest rates, which may answer the question, “How does student loan interest work?”: 

The Different Types of Interest 

There are two basic types of interest rate options that you should know about:  

A Fixed Interest Rate

A Fixed interest rate does not change throughout the loan period. You’ll find fixed interest with most loans, including installment and personal loan options, which are sometimes referred to as fixed-rate loans

Some people find that having fixed interest can make things easier, as their payment usually stays the same. Once you learn more about how loan balances can change, you’ll realize that is not always the case.

A Variable Interest Rate

A variable interest rate changes throughout loan repayment, depending on a few factors. With a variable rate, the interest can increase or decrease, and many people take the risk because they could potentially save money.   

The Differences in Interest Accumulation

The way that interest is collected also impacts your loan balance; here are the two major ways that interest is collected with a loan.

Compound Interest Rate

Compound interest is calculated on top of the principal and any interest that accrues on the loan balance. Because of this change, your loan balance may increase during loan repayment. You’ll see compounding interest with credit cards. Because compounding interest, such as credit card interest, can add up quickly, it is important to learn more about credit card interest rates and APRs before you decide to use them for your expenses.  

Simple Interest 

Simple interest is the most common kind of interest calculation you will find with a loan. With simple interest, interest is only calculated on the principal loan amount. This means that a borrower will be able to calculate loan interest from the get-go, and the loan balance should not change due to the interest. 

One common example of simple interest is installment loans

Because interest rates have such a large impact on your loan balance, it is important to educate yourself on how interest works.

More Information on What Decreases or Increases Your Total Loan Amount

Interest will definitely impact your total loan amount; however, that isn’t the only variable that does. Here are some other factors that decrease or increase your total loan amount due:

Late Payments or Deferred Payments 

Late payments or deferred payments also increase your total loan balance. When you miss a loan payment, there will likely be a fee that you’ll have to pay, which will be added to your loan. With some loans like student loans, you can defer payments, which means a grace period, but interest will still accumulate during that time. 

Paying Less Than the Minimum Amount Due

Every loan will have a minimum amount due as your monthly payment. If you pay less than that minimum balance, you may be charged a fee, which then increases your total loan amount due.

Using Your Credit Account (For Revolving Credit)

When it comes to credit cards or other types of revolving credit, the more you use it, the higher your loan balance will be. This occurs for a few different reasons. The more you spend, the higher your monthly payment will be. And because the interest is compounding, the higher the balance, the more accrued interest—which increases your total loan amount due.

The Payment Plan, Especially for Federal Student Loans

Generally, two loans with the same principal and interest but different repayment terms can still have different loan balances. The loan with the more extended repayment may mean paying more. This is especially important with federal student loans. Here are some payment plans with student loan debt you will likely come across: 

A Standard Repayment Plan 

With a standard repayment plan with student loan debt, you’ll make fixed payments with standard loans for up to 10 years and between 10 and 30 years for consolidation loans. 

Pay as You Earn (PAYE)

The pay-as-you-earn plan takes 10% of your discretionary income but never exceeds the standard repayment plan minimum.

Graduated Repayment Plan

With the graduated repayment plan, your payments will start lower at first and then usually increase every two years. While still making it possible to repay the loan within 10 years, 10–30 for consolidation loans.  

Revised Pay As You Earn Repayment Plan (REPAYE)

This plan offers similar repayment to the PAYE plan, except payments are recalculated each year, which will be based on your income and family size. Your loans may be forgiven if you haven’t repaid your loan in 20 years (undergraduate) or 25 years (graduate). 

This includes accrued interest or unpaid interest. This increases your total loan balance than with a PAYE or standard plan, but your student loan payments may be more manageable. 

Income-Based Repayment Plan (IBR) or Income-Driven Repayment Plan

Income-based repayment plans, also called income-driven repayment plans, will consider your discretionary income for the monthly loan payment, which will never exceed either 10 or 15 percent of that income. These payments will never exceed the 10-year standard repayment plan. Payments are recalculated every year based on income and family size. Around 30% of all federal borrowers are in such a plan.2

Income-Contingent Repayment Plan (ICR)

With ICR, your monthly payments will either be 20% of your discretionary income or the amount you would pay on a 12-year repayment plan based on your current income—whichever option is the least. After 25 years, if there is any student loan balance left over, it will be forgiven. 

Income-Sensitive Repayment Plan

If federal student loan borrowers have an income-sensitive repayment plan, they will have 15 years for loan repayment, and payments will also be based on income. 

And so, if you have federal student loans and change your repayment plan, you may increase your total student loan balance. While private student loans don’t have this much flexibility. Instead, private student loans will be impacted by the same factors as standard loans, as they share more similarities.


Sometimes, errors can also happen with your lender, which increases your total loan balance. Some common errors include calculation errors, principal balance not being updated, the wrong interest applied, etc. If there are any loan errors, you should contact your lender immediately, and those errors should be corrected.

How To Decrease Your Total Loan Balance Quickly 

Paying off any total loan balance quickly will help you save money, and being debt-free can help your financial health and give you more freedom. Here are some strategies to help you decrease your total loan balance quickly: 

Pay More Than the Minimum Amount Due

If possible, paying more than the minimum amount due each month is a practical way to decrease your loan balance. Even paying a little more each month can really help bring down that loan balance faster. 

Pay Your Loan Early by Making Extra Payments

Making some extra payments can speed up the repayment process. However, keep in mind that some lenders have prepayment penalties, so make sure you know about that before making any extra payments. 

Refinance or Consolidate Existing Loans

Refinancing or consolidating debt can definitely help speed up repayment. Refinancing occurs with one loan, while debt consolidation occurs when paying off multiple loans. With this process, you will take out a new loan to pay off the existing debt. Ideally, the new loan will have a lower interest rate and more manageable repayment. 

Consider a Debt Repayment Strategy for Loan Repayments

If you are struggling with debt, then a debt repayment strategy can really help! Here are some common methods that people use to help speed up their repayment:

Financial StrategiesDescription
Budgeting– Tool for managing money and achieving financial goals.
– Can be tailored to prioritize debt payments.
Avalanche Method– Prioritizes the highest-interest debt.
– Minimum payments on other debts are maintained.
– Focuses on interest savings over time.
Snowball Method– Pays off the debt with the highest loan balance first.
– Minimum payments on other debts continue.
– Emphasizes psychological motivation.

FAQs About Total Loan Balance With Student Debt

What steps can I take if I notice my loan balance isn’t decreasing as expected?

First, review your loan agreement to understand your interest rate and any potential fees. If things still don’t seem right, reach out to your lender for clarification. Keeping good records of all communications and payments can also be helpful.

What is the main factor that increases your total loan balance?

The primary factor is the accrual of interest on the principal. Over time, this can substantially increase the total loan balance, especially if only minimum payments are made and interest compounds. This means that only interest payments will be made rather than making a dent in the loan principal. 

What’s the difference between federal student loans and private student loans in terms of loan balances and repayment options?

Federal student loans typically offer borrowers various repayment options, including the possibility of adjusting monthly loan payments for student loans based on income.

Why is it essential for borrowers to understand their student loan interest and accrued interest?

Understanding student loan interest is crucial because it directly affects the total amount you will repay over the loan’s life. Accrued student loan interest can add significantly to the loan balance if it’s not paid off, leading to larger monthly payments or a longer repayment period.

How do student loan servicers assist borrowers in managing their student loan debt?

Student loan servicers act as intermediaries between the borrower and the loan provider. They manage monthly payment plans, provide information about repayment options, and assist with tasks like loan consolidation or refinancing.

Why might a borrower’s student loan repayments differ from their friend’s, even if they borrowed the same amount from their student loans?

Multiple factors can cause this difference with student loans: the rate on their respective student loan options, whether they have federal or private student loan options, the repayment plan chosen (like interest-only payments for a period), and any unpaid interest that has been capitalized.

Are there benefits to securing a student loan through a credit union or bank instead of federal sources?

While federal student loan debt can offer certain benefits and protections, a small number of borrowers might find that a bank or credit union offers a competitive rate, better customer service, or additional benefits like relationship discounts; however, this is not always the case. It’s crucial to compare all options, federal loans, and private loans, before making a decision. 

Can you explain the impact of different repayment periods on the total student loan balance?

The repayment period affects how much interest accrues over the loan’s life. A longer repayment period might lead to lower monthly payments, but the borrower may end up paying more in total interest. Conversely, a shorter period means higher monthly payments but less interest paid over the loan’s life.

What are the implications of making interest-only payments on my student loans?

Making interest-only payments on your student loan balance means you’re only covering the interest accrued during that period and not reducing the principal balance. This can lead to a longer time to pay off the federal loans and more interest paid over the life of the loan.

CreditNinja’s Thoughts On Your Total Balance and Loan Payments

At CreditNinja, we understand that with mounting student loans, understanding the nuances can determine how efficiently you manage your debt. 

It’s essential to understand that when borrowing money, the principal loan balance isn’t the only factor to consider; how much interest will accrue over time plays a significant role. For instance, the federal government might offer income-driven repayment plans, aligning monthly minimum payments with one’s earnings. At times, a borrower might benefit from a temporary interest rate reduction, but this can lead to capitalized interest, where unpaid interest gets added to the principal amount. This interest capitalization can increase the total amount owed over time.

Many borrowers face variable interest rates, which can fluctuate over the duration of the loan. This can sometimes make it harder to predict the outstanding loan balance, as the amount can change based on these rates. 

Private lenders often base their loan terms on credit history and credit scores. Late payments can adversely affect these scores, making future borrowing more costly. Some borrowers, in times of financial hardship, might consider deferring payments, thinking it offers a breather. However, during such deferrals, monthly interest can still accumulate, especially if the loan doesn’t have a grace period. 

Moreover, while federal loans might offer benefits like fixed interest rates or the possibility of a subsidized loan, personal loans from private entities may not have the same advantages. It’s also worth noting that the federal government provides options like loan consolidation, allowing borrowers to merge multiple federal loans into one, often with a fixed interest rate. This not only simplifies the repayment process but may also provide benefits like extended payment plans.

Regardless of the source of the loan—be it a credit card issuer or a private lender—it’s paramount to read the loan agreement carefully. It can offer insights into when one can pause monthly payments, the consequences of late or missed payments, and the eventual fate of the remaining balance. All these considerations underscore the importance of being proactive in understanding and managing one’s loans, ensuring financial well-being in the long run.


  1. Student Loan Debt Stats | Education Data Initiative
  2. Redesigned Income-Driven Repayment Plans | Pew 
Read More
how long does credit card approval take
Approval for a credit card can take anywhere from a few minutes up to 30 days. The processing time depends on the lender, the verification…
how to switch credit cards
Borrowers can switch credit cards by applying for new credit products and closing their current account. Applying for a new card with the same creditor…
Best Memorial Day Sales
Memorial Day weekend is a prime time to shop for basic necessities and big-ticket items. Most stores are already advertising Memorial Day deals on all…
someone opened a credit card in my name
If you notice that someone opened a credit card in your name, you will need to report the fraudulent transactions or accounts to the credit…

Quick And Easy Personal Loans Up To $2500*