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What is the difference between loan interest and bank loan repayment?

Author:
Harold Averkamp, CPA, MBA

Definition of Loan Interest

Loan interest is the expense a borrower incurs for using a lender’s money. Loan interest is also the income earned by a lender for allowing the borrower to use the lender’s money.

Definition of Bank Loan Repayment

A bank loan repayment is likely referring to the loan principal balance (or part of the principal balance) that the borrower is paying the lender (bank). When the principal payment is made, the borrower’s liability Notes Payable or Loans Payable is decreased and the bank’s asset Notes Receivable or Loans Receivable is decreased.

Definition of a Loan Payment

A loan payment (such as a monthly mortgage loan payment or a monthly car payment) consists of an interest payment for one month’s interest and a principal payment so the principal balance is $0 at the end of the period of the loan. Each month’s payment is usually the same amount, but the amount of interest decreases slightly (because of the previous month’s principal payment) and the amount of the principal payment increases slightly.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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