What Increases Your Total Loan Balance

Surprised that after you have taken out a loan, the amount you now have to repay is typically more than the principal balance you borrowed? Want to know if any other surprises are lurking close by? Loans are essential to help you achieve your goals, from buying a car to owning a home or starting a business. However, keeping your loan balance manageable can make a significant difference in your overall financial wellness. In this blog post, we will go over 5 reasons your loan may have increased and 5 ways you can better manage your debts.

5 Factors that cause your loan to mushroom

1. Interest Rates

Interest rates are the most significant factor that determines your total loan balance. It’s the cost of borrowing money, and every loan has an interest rate associated with it. When you take on a loan, you’re agreeing to pay back the borrowed amount with interest. The higher the interest rate, the more you will pay in total over the life of the loan.

2. Loan Terms

The loan term is another critical factor that impacts your total loan balance. The loan term is the length of time it will take to repay the loan fully. A more extended loan term means you will be making monthly payments for longer periods, and therefore, pay more in interest. Payments made over longer periods often result in an increase in the total loan balance.

3. Late Fees

Late fees are fees charged when you make a payment after the due date or miss payments altogether. Late fees can increase your total loan balance, making the debt repayment process even more challenging. To avoid late fees, you need to make payments on time. You can set reminders or automate payments to ensure this.

4. Additional Borrowing

Additional borrowing is taking on more debt once you’ve already started repaying a loan. It might seem like an easy solution to acquire more credit, but additional borrowing puts you deeper in debt and makes it harder to repay your loan. Every additional borrowing adds more fee, interest, and repayment work to your overall balance.

5. Payment Plan Changes

Making changes to your repayment plan can impact your total loan balance. For example, refinancing a loan may reduce your monthly payments, but you will end up paying more in the long run. Changing payment plans could alter the amount you pay each month, the total interest, or the length of time to pay off the loan.

What Can You Do About It?

1. Make Extra Payments

One of the easiest ways to decrease your loan balance is by making extra payments. By paying more than your minimum payment, you can reduce the amount of interest you owe and pay off your debt faster. Consider using any extra money you receive, such as a bonus or tax refund, to make extra payments on your loans. Additionally, you can pay more frequently, such as biweekly instead of monthly, which will also reduce your loan balance faster.

2. Refinance Your Loans

Another option for reducing your loan balance is to refinance your loans. Refinancing involves taking out a new loan with better terms, such as a lower interest rate or longer repayment period. This can help you save money on interest and reduce your loan balance faster. However, make sure to do your research before refinancing to ensure that it’s the right option for your financial situation.

3. Consolidate Your Loans

Consolidating your loans involves combining multiple loans into one loan. This can help simplify your debt and potentially lower your interest rate, which in turn can reduce your loan balance faster. Consider consolidating your loans if you have multiple loans with high-interest rates, such as credit cards. However, be aware that consolidating your loans may increase your monthly payments.

4. Increase Your Income

Increasing your income is another effective way to reduce your loan balance. Consider taking on a part-time job or starting a side hustle to bring in extra income. Use this additional income to make extra payments on your loans. By doing so, you’ll be able to pay off your debt faster and reduce your loan balance faster.

5. Create a Budget

By tracking your expenses and income, you can find areas to cut back on spending and allocate more money towards your loans. Use a budgeting tool, such as Mint or YNAB, to help you stay on track and prioritize your debt payments.


Understanding what increases your total loan balance and how you can decrease it gets you informed and sets you up to take decisive action about your finances. Interest rates, loan terms, late fees, additional borrowing, and payment plan changes are critical factors that impact your overall debt. By being mindful of these factors, you can better manage your loans, minimize fees, and reduce financial stress. Plan ahead, make payments on time, and consider expert advice to help you navigate your finances to achieve your financial goals. For more information on managing your finances and loans, check out our other blog posts or see our page for borrowers.

Remember, managing debt is a journey, so be patient, stay committed to your goals, and seek help when needed.