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Negative amortization happens when you're not paying enough on your loan, so the amount you owe actually goes up instead of down. This can happen with loans that have adjustable interest rates or if you're making very low payments.
For example, let's say you have a loan for $10,000 with an interest rate of 10%. If you're supposed to be paying $100 a month, but you're only paying $50 a month, you're not paying enough to cover the interest. That unpaid interest gets added to what you owe, so now you actually owe more than $10,000.
"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"
Negative amortization, what's that you say?
It's when you owe more, even though you pay!
If your payments are too low or your rate's on the rise,
Your loan balance can grow to a big surprise!
It happens when interest isn't fully paid,
And to what you owe, it gets added, not slayed!
So be careful with loans and payments you make,
Or your debt might grow, like a big scary snake!