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Well, yeah. However I never heard of a 51 month loan.

It is usually yearly the terms.

So in essence he could have saved more if he took a 48 month lease but was forced to make higher payments every month.

He gave himself financial freedom by taking alonger term since it was the same rate regardless.

So, since his choices are only really 48 or 60 or 72, you can't really compare it to a 51 month loan.
 

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loach said:
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.
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).
that's pretzel logic as a 51 month loan wouldn't be available......

He was comparing his savings to a 60 month loan. you can't refute his math by saying "if you took out a 51 month loan" since odds are the bank would not offer the same rate.

now. if you argue that if you pay the exact difference between a 72 and a 60, you'll effectively have a 60 with only the option to NOT pay the extra principle, then I couldn't argue with you. :eek:
 

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mitchl said:
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.
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.

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.
I apologize.  You are correct.

I was figuring a simple interest loan.  He will still save money in interest and about 10 months off the loan.
 

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To be fair, I didn't run the numbers through an amortization table for both on this particular purchase (though we did something very similar for a home refi before, which is where I was basing my info). Here's the basis, maybe a finance guru can explain why I'd be wrong.

For a 60 mo loan @ 5.49%, you pay a set payment, say $500. Of that, a certain amount goes toward principle and towards interest. Now that changes every month, but in the first few years, the bulk (say 400) is going towards interest, leaving 100 to go toward principle, correct? So after the first year, you would have paid roughly 400*12= 4800 in int, 100x12=$1200 in principle (I know with each payment, the scale slides a buck or so towards priciple, but I'm keeping the numbers simple).

Now on a 72 mo @ 5.49%, your payment would be about $440. Normally 365*12= 4380 int & 75*12=900 principle. However, since we plan on putting that $60 difference towards the principle each month, that raises our monthly payment to $440+60 = $500 and the pricniple payment would be 60*12=$720 + the original $900 for a total of $1620 in principle payments.

Now this is just the first year. In that 12 months, I would have paid down roughly $1620 of my loan vs $1200 w/ a 60 mo by making the exact same payment. The big difference is that extra $60 gets to go completely towards the principle compared to the 60mo where it's being split between prinicple and interest, heavily weighted towards int in the first few years.

What's wrong with my math here?
 

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NY_Joe said:
Well, yeah. However I never heard of a 51 month loan.

It is usually yearly the terms.

So in essence he could have saved more if he took a 48 month lease but was forced to make higher payments every month.

He gave himself financial freedom by taking alonger term since it was the same rate regardless.

So, since his choices are only really 48 or 60 or 72, you can't really compare it to a 51 month loan.
Now the discussion has changed from the math to whether or not you can get a 51 month loan? I just used 51 months because he used that number of months in his example of when his 72 month loan would be paid off.

Yes, he gained financial flexibility by taking a longer term. That is the only advantage - there is no mathematical interest savings between taking a 72 month loan and paying it off in 48 months vs. just taking a 48 month loan (assuming the interest rates are the same).
 

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admin said:
To be fair, I didn't run the numbers through an amortization table for both on this particular purchase (though we did something very similar for a home refi before, which is where I was basing my info). Here's the basis, maybe a finance guru can explain why I'd be wrong.

For a 60 mo loan @ 5.49%, you pay a set payment, say $500. Of that, a certain amount goes toward principle and towards interest. Now that changes every month, but in the first few years, the bulk (say 400) is going towards interest, leaving 100 to go toward principle, correct? So after the first year, you would have paid roughly 400*12= 4800 in int, 100x12=$1200 in principle (I know with each payment, the scale slides a buck or so towards priciple, but I'm keeping the numbers simple).

Now on a 72 mo @ 5.49%, your payment would be about $440. Normally 365*12= 4380 int & 75*12=900 principle. However, since we plan on putting that $60 difference towards the principle each month, that raises our monthly payment to $440+60 = $500 and the pricniple payment would be 60*12=$720 + the original $900 for a total of $1620 in principle payments.

Now this is just the first year. In that 12 months, I would have paid down roughly $1620 of my loan vs $1200 w/ a 60 mo by making the exact same payment. The big difference is that extra $60 gets to go completely towards the principle compared to the 60mo where it's being split between prinicple and interest, heavily weighted towards int in the first few years.

What's wrong with my math here?
What's wrong with your math is that you're using made-up numbers. Actually the bulk of the payment goes toward principal on every payment of a short-term loan such as a car loan, but that's actually irrelevant as well so I probably shouldn't even mention it. Anyway, the monthly payment on a $35,000 60-month loan at 5.49% is $668.38 per month. On a 72-month loan using the same interest rate the payment would be $571.66 per month. If you took the payment difference of $96.72 per month and paid it as extra principal each month on the 72-month loan, you would end up in exactly the same place at any point in the the loan as you would have with the 60 month loan. I would be happy to post an Excel spreadsheet example of the amortization schedules of the two loans if there is some way to do so.
 

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Nope, I believe you. I guess the mistake I made was assuming a mortgage loan and auto loan would work in a similar fashion. Thanks for setting me straight. I guess we'll technically just have the 60 month loan then, with the flexibility to lower our payment if needed.
 

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admin said:
Nope, I believe you. I guess the mistake I made was assuming a mortgage loan and auto loan would work in a similar fashion. Thanks for setting me straight. I guess we'll technically just have the 60 month loan then, with the flexibility to lower our payment if needed.
The mortgage loan and auto loan do amortize the same way. However, due to the much shorter length of a car loan you are paying more principal early on, as opposed to a 30 year mortgage where you're paying mostly interest early on.

Anyway, you will save yourself a bunch of interest if you are able to make extra principal payments. If I were you I would do so and pay it off as fast as you can.
 
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