Key Takeaways

Fees, penalties, deferment, and too much debt are some of the factors that may increase your total loan balance. However, there are several ways to keep your total balance low and manage your debt better, such as not missing payments and paying off your debt faster.

When you take out a loan, interest will accrue over a period of time. But you may have noticed that your total loan balance is increasing rather than reducing with payments. Several factors can increase your loan balance, including missed and deferred payments and accumulated fees for late repayments.

If you're considering applying for a loan, it is important to understand how loans work and the best way to repay them. This will help you avoid paying more than you have to.

Factors that Impact Total Loan Balance

There are several factors that may impact the outstanding balance on your loan. Below are a few of the main factors that increase loan balance.

Interest Rates

If you have an adjustable rate or a variable interest rate on your loan, it could impact your total loan balance. Adjustable rates can fall or rise according to changes in the market.

An adjustable-rate mortgage (ARM) is one such example. With this type of mortgage, you may see your total balance increase if you are making minimum payments or if you have a payment cap on your mortgage.

A payment cap refers to when you have a set monthly payment. When interest rates increase and the monthly payment stays the same, the unpaid interest amount may be added to your outstanding balance.

Late Fees and Penalties

You may incur penalties and fees for several reasons, such as application charges, account maintenance fees, or processing fees. One of the most common reasons for incurring charges is late fees.

If you miss a payment deadline, your lender typically charges a late fee which is reflected in your statement. You may also have to pay additional interest due to the penalty.

Additional Charges

Your total loan balance may also increase due to hidden fees such as loan origination fees, credit insurance, and application fees. These fees may be added to your outstanding balance.

Spend some time understanding the costs associated with borrowing. Your APR or annual percentage rate will give you a more accurate picture of the total loan cost because it includes the interest rate as well as other fees.

Teresa Dodson, CEO and Founder of Greenbacks Consultings LLC, encourages borrowers to look carefully at the terms of the loan. “Make sure you read your contract and understand all of the fees associated with your loan. Understand what could increase your loan balance and avoid making those mistakes.”

6 Reasons Why Loan Balances May Go Up

Generally, your loan repayments are fixed by your lender so that the outstanding balance will go down over time. However, there are several reasons why your progress may be interrupted, including:

1. Paying Less Than the Minimum Payment

When you pay less than the minimum payment or monthly loan payment, your total loan balance may increase because of accrued interest. To reduce your principal balance, you must make a payment each month that will cover the principal payment as well as the interest charges for the month.

2. Not Paying Back Loan on Time

Not paying back the loan on time or not making monthly payments on time may also be a reason why your total balance increases. A delay in student loan repayment or other loans may cost you in terms of late fees and penalties, which may be added to your balance. The interest rate for that time will also be subject to interest capitalization, which causes your loans to grow.

3. Deferring Payments

Opting for payment deferment or debt forbearance will capitalize or increase, the total loan balance. Federal student loans and private student loans usually give students a grace period when they end their studies before student loan payments start. It's important to note that during this deferment period, interest continues to accrue on the total student loan balance.

4. Income-Based Repayment Plans

If you're eligible for a federal income-driven plan, you'll be asked to pay what you can afford based on your income instead of what is required to actually bring down your debt. In such instances, your repayment amounts may sometimes be less than the interest charges. Income-driven repayment plans can cause your loan balance to creep up slowly over time. A standard repayment plan can help you avoid this situation.

5. Extended Payment Plans

When you opt for a longer payment plan, typically 20 years or more, this can reduce the size of your monthly payments. But it also means that you’ll owe lenders a lot more in interest charges over the life of the loan. During the first few years of the loan term, your payments will typically cover just the interest charges and very little principal. If you miss a single payment during this time, it can result in your balance going up.

6. Calculation Errors

Although it isn’t very common, loan capitalization may also happen because of errors in calculation. If you have been making your loan payments regularly and you see that your total balance has increased, you should get in touch with the lender. Errors may happen due to many reasons, but your lender can help you sort out the issue.

Managing Loan Balance Over Time

There are several factors that increase total loan balance, but there are just as many ways to reduce your overall cost and manage your loan balance better over time. Consider these ways to get your loan account back on track.

Minimizing Interest and Fees

When it comes to loan repayment, the interest rate and capitalization of interest is the main reason for financial hardship and high loan balances. One of the most effective ways to manage your loan balance is by minimizing interest and fees through timely payments.

Always ensure to pay your loan installments on time to avoid late fees. If you are finding it challenging to manage payments, shop around for lower interest rates and refinance your loan. Consider fixed interest rates or consolidation.

If your credit scores are relatively good, you may qualify for refinancing at a lower interest rate. You may also have the opportunity to negotiate a lower rate with your existing lender by showing them an offer from a competitor.

Paying Off Debt Quickly

Another effective way to reduce your total amount is by paying off your debt faster. There are several ways to achieve this. The debt avalanche method focuses on debts with high-interest first, which is typically personal loan or credit card debt. Doing this will help you save a considerable amount of money on interest charges, as you’ll be paying off your most expensive debts first. This option is ideal for those who are disciplined to stick to the repayment plan and have the goal of saving as much as possible on interest charges.

If you are in need of a motivation boost to clear your loans and credit card debt, the debt snowball strategy can be an effective choice. With the debt snowball method, you can start by paying off your smallest debt first. Once you do that, you’ll be motivated to keep going.

You can also increase your payment amount or make extra payments on your loans whenever possible to reduce the amount you owe quickly. Check with your loan provider to see if this option is available for the type of loan you have. Use your bonuses, tax refunds, and windfalls to make extra payments to lower your principal amount.

Who Increases Your Total Loan Balance

There are two main parties involved in every loan product- a borrower and a lender. Each may contribute to the increase in your total loan balance in different ways.

Lenders and Creditors

Lenders and financial institutions may contribute to an increase in your total loan balance by charging penalties and fees for missing payment deadlines or failing to make payments. They may also increase your interest rates.

For example, most credit cards have variable interest rates, so they can change over time. Credit card companies may also raise your interest rates if you are late for several billing cycles.


As a borrower, you may be contributing to the increase in your total loan balance, knowingly or unknowingly. You may have borrowed more than you needed and may be struggling to keep up with payments. This may add fees and penalties to your loan balance. If you have opted for loan forbearance or deferment, that may also be a reason why you end up with a higher balance than before.

Why Your Total Loan Balance May Be Increasing

Seeing the total balance on your loan increase can be frustrating and confusing, especially when you are working hard to pay it off. But taking the time to understand why it may happen can help you prevent it. Once you pinpoint the reason for an increase, you can then work to reduce the amount you owe.

If you're looking for debt relief, TurboDebt can help. Get in touch with our qualified debt relief specialists to find a debt relief program that's right for you. Connect with us for a free consultation today.