Wednesday, May 26, 2010

Car loan-22996$. APR=7.49/ 36 months. Made first payment=1000$. Shows up as 850$ principal,150 inter

How did the bank come up with that calculation. Would it have been proportional even if I made a 2000$ payment instead of 1000$ (i mean would it have been 1700$ principal and 300 interest)? how the hell does this interest work?



Bottomline, is paying of early better ?



Car loan-22996$. APR=7.49/ 36 months. Made first payment=1000$. Shows up as 850$ principal,150 interest. How?

Interest on most loans accrues daily. If you had paid, $2000, it still would have only been $150 in interest.



Paying early saves you money. It's like earning 7.49% interest guaranteed only in savings.



You can calculate the amount of interest you are paying per day like this:



loan amount * interest rate / days in a year.



ie: $22996 * 0.0749 / 365 = $4.72 per day.



Now that you've made a payment, the total amount of principal is lower so your interest will go down.



$22146 * 0.0749 / 365 = $4.54 per day.



Car loan-22996$. APR=7.49/ 36 months. Made first payment=1000$. Shows up as 850$ principal,150 interest. How?

Paying off early would be better since it would reduce the amount of interest you pay, interest that is not tax deductible anyways. If your monthly payment as provided by the lender is $1,000 a month, and they are apportioning it as $850 towards the principal and $150 toward interest, then if you make any additional payment over and above the agreed upon monthly payment, all of it is applied towards principal, which reduces your interest in the future. So if your monthly payment is $1,000, and you make a $2,000 payment, by law the lender has to apply the additional $1,000 towards principal, so the payment would be split $1,850 towards principal and $150 towards interest.



Car loan-22996$. APR=7.49/ 36 months. Made first payment=1000$. Shows up as 850$ principal,150 interest. How?

If you can afford to do so paying extra on every payment can save you lots of money. You will get the loan paid off much faster and it will cost you less in interest. If you have microsoft excel there is a loan amortization program in it that should help you to understand this concept or look it up on the internet - many websites offer this where you can put in all your loan information and it will show you how your monthly payments break out between Principle and interest. The interest owed is calculated on the outstanding balance every month. Each month as you pay your loan down your principle payment should increase and your interest payment should decrease.



I pay extra on my mortgage every month and so far have cut 10 years off the time I have to pay on it. So essentially I've cut my 30 year mortgage by 1/3. It will cost me thousands less in interest payments. Once you pay them the money you never have to pay interest on it again.

No comments:

Post a Comment

Blog Archive