What is an average life?
Dear average life (WAL) or average lifetime reflects the average number of years needed to repay one unit of principal on a loan such as a dollar. For example, in a 10 -year -old loan without interest and two -week payments, the average life would be five years. However, most loans come up with interest, and therefore referred to as a "weighted" average, reflecting the fact that some payments carry more weight than others in terms of repayment of the balance of the principal of the loan. Something like a thirty -year loan could therefore have a weighted average lifetime of 17 years or more, depending on the amount of interest. The amounts of payments are also taken into account. Using this information, people can on average determine how long it takes to repay one dollar or other unit of currency. This information can also be used to find out how long to pay half the main one.
Many things can distort weighted average life. Some loans have an unevennessNo payments, while people pay more or less at the beginning of the credit period than at the end. Likewise, interest rate changes can throw the calculation. In addition, people can repay loans early, which reduces the average life by repaying more principal with each payment. The basic calculation assumes that payments will remain consistent as plan.
Calculation of weighted average life is generally not so important to individual consumers, but may be important for businesses. This can be used both to determine, how payments will work on loans that the business business and how to work on loans widespread by enterprise. As can be seen in calculations, the higher the interest rate, the higher the weighted average life.
may be useful to determine Wal on a loan, especially when people apply loans. Another thing people may want to consider is the interest paid throughout the life of the loan. In general, at the beginning it is better to pay more for a loan and ultimately less if payments are distorted because it will be fastE pay the principal and reduce the average life except for the amount paid in the interest for the life of the loan.