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I don't follow this. If you are taking out a 72 month loan rather than a 60 month loan, but paying the extra amount equivalent to the 60 month loan difference each month, you will have it paid of in 60 months, no?? If the interest rate is the same this is all you are doing.admin said:

I must not understand what you are saying.

You are ending up in the exact same place as would if you took out a 51 month loan. You're not saving any interest by taking the longer term and making extra interest payments if the interest rates were the same regardless of term. I suppose you've given yourself the flexibility to make a lower payment if you get in a financial bind.admin said:

Well, you actually should still compare. Right now my Home Equity line is at 8.9%, then use your top tax rate (lets say 30%, 25%federal, 5% state)- then your taxed rate would be 8.9% * ( 1.0 -.30 )= 6.23%. If your loan rate would be less than 6.23%, then you should go loan, if greater then Home Equity. That would be if your home equity would be fixed. If it is variable and goes up, then you have to figure your risk of home equity going up or down. Mine has gone from 5.5% 3 years ago to 8.9% now, but I can lock a 7.9% for a fixed term if I like.fenwah said:

I will go 48 months or less at 4.9% or less-- otherwise I will either cut a check or go home equity. Unfortunately I don't think there is any way my Acadia will be here by Feb 28; maybe St. Patrick will bring some more low rates.

You are wrong.loach said:You are ending up in the exact same place as would if you took out a 51 month loan. You're not saving any interest by taking the longer term and making extra interest payments if the interest rates were the same regardless of term. I suppose you've given yourself the flexibility to make a lower payment if you get in a financial bind.admin said:

He is saving money in interest. If he took a 51 mo loan, if there is such a thing, he is paying interest on every penny he borrowed. By paying extra monthly, he pays down the principle and does not pay interest on it.

His monthly payments are based of the loan amount + interest, all predetermined based on the loan amount and interest rate. Howmuch each month is determined by the length of the loan.

Since the rate is equal from 36 to 72 mo, he creates a lower monthly payment to have to pay each month even though he can afford the $60 more. Let us say this payment is $500.

Every month he now has to pay $500. However, he sends in a check for $560. The $500 gets applied to the principle(loan amount) and to the monthly interest. The extra $60 is directly applied to the principle(loan amount). As he continues this month after month he is actually lowering the loan amount he owes them. So the loan will now be paid off sooner b.c the principle is being paid down quicker than the expected 72 months.

So, at the end of 4 yrs and 3 mo he will have his loan paid off and save paying the interest on 1 yr and 9 mo of loan payments. Any payment you make above and beyond the prescribed payment can be applied all to principal b/c you satisfied your monthly commitment to the loan.

Tha tis only up to 36 months. His term look to be 51 mo if he contiues his normal payments.bkmartin said:I thought the 0% financing was extended until the end of the month. As long as that is going, it seems you should use that.

Brian

No, he is paying down his loan quicker with extra monthly payments.zman said:I don't follow this. If you are taking out a 72 month loan rather than a 60 month loan, but paying the extra amount equivalent to the 60 month loan difference each month, you will have it paid of in 60 months, no?? If the interest rate is the same this is all you are doing.admin said:

I must not understand what you are saying.

I am not wrong. You are just missing my point. He is saving money by paying the loan off over 51 months instead of 72 mos. That's obvious, but that wasn't my point. My point was that he will have paid exactly the same amount of cash out by taking a 72 month loan and paying it off in 51 months as he would have if he just took out a 51 month loan (assuming same interest rate on either loan).NY_Joe said:You are wrong.

He is saving money in interest. If he took a 51 mo loan, if there is such a thing, he is paying interest on every penny he borrowed. By paying extra monthly, he pays down the principle and does not pay interest on it.

Somewhere, someone's math is way off on this. At 5.49%, on a 72 month loan, you flat out will not have 21 months of interest. Here are the 3 terms in question, I am using 25000 as the Purchase amount, because it was my first guess, and the difference between 72 and 60 months was $69, so I figured close enough.NY_Joe said:Every month he now has to pay $500. However, he sends in a check for $560. The $500 gets applied to the principle(loan amount) and to the monthly interest. The extra $60 is directly applied to the principle(loan amount). As he continues this month after month he is actually lowering the loan amount he owes them. So the loan will now be paid off sooner b.c the principle is being paid down quicker than the expected 72 months.

So, at the end of 4 yrs and 3 mo he will have his loan paid off and save paying the interest on 1 yr and 9 mo of loan payments. Any payment you make above and beyond the prescribed payment can be applied all to principal b/c you satisfied your monthly commitment to the loan.

5.49% @ 72 months = $408 payment, 29400 total paid, 4400 interest

5.49% @ 60 months = $477 payment, 28644 total, 3644 interest

5.49% @ 51 months = $551 payment, 28086 total, 3086 interest

The original question was by saving $1000 by paying earlier, it would be paid 1 year and 9 months earlier. Well the problem is that in no cases above, do a year of payments equal a year of interest. Given the longest term, 72 months, a total of $4400 in interest is paid, which is a little less than 11 payment totals.

Lets say that you do pay the 60 month payment on the 72 month loan. In 51 months, you pay 477 x 51 = 24,327. Well some bank won't be satisfied with that, because it is not even the purchase amount of $25,000- and that is not even including any interest- that would be if 100% of every payment went straight to principle.

Assuming equal monthly payments, the forumula is simple, on a simple interest loan with no early payoff penalty (read your contracts for that too!!), you just amortize the loan for the term you want to payoff, in this case for 51 months.

In excel, here is your formula -- > =PMT(interest(/# of payments to make per year),total payments, - Purchase price)

Also, an important note is that your principle and interest amount is not the same for every payment. Simple interest loans are when you make a payment- 1) it pays all interest accumulated to date, 2) it pays down principle -- excess should always be applied to principle by default, however some banks do apply to future payments (if I pay $60 extra now, it lowers next month by $60)--- that is always a bad deal- you always want it taken off principle.

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