How is interest applied on an RV loan?
When you take out a 10 year RV loan, is the interest spread out equally across all the payments or is it mostly paid up front like a home mortgage?
Forum Discussion
To your original question: This is the way it was explained to me by my lender.
I double the payment every month to pay it down quicker.
You have a billing period, ie monthly payment, that can vary from 30 to 35 days (they use the date it posts, not the date you pay it). That is how they determine the billing period, and then they use division to give you a daily interest amount, using whatever rate you are assigned and the loan balance. I'll use your 15k number as the loan amount. In this hypothetical, the rate doesn't matter.
So lets say the daily rate is five dollars for month l, and that month is 30 days. So out of a 200 dollar payment, 150 goes to interest and 50 goes to principle. At month 2 you will owe 14,950. Because you lowered the principle, the daily rate is now 4.80, for example. (Not using exact nbrs; just trying to demonstrate how it works). So month 2 is 4.80 x 31. So now the interest is 148.80, and the principle is 51.20.
After month 2, the original amount you owe is again reduced, but only slightly.
Month 3 the daily rate might come out to 4.75. You can do the math.
There is where making extra payments comes in. Any money over and above the monthly interest amount is applied to principle. As the principle goes down, so does the daily rate.
This was my understanding of what I was told anyway. Sees to be correct, as I go online and look at the amortization statement and see the numbers change each billing period.
Hope I explained it right and that it helps.
I double the payment every month to pay it down quicker.
You have a billing period, ie monthly payment, that can vary from 30 to 35 days (they use the date it posts, not the date you pay it). That is how they determine the billing period, and then they use division to give you a daily interest amount, using whatever rate you are assigned and the loan balance. I'll use your 15k number as the loan amount. In this hypothetical, the rate doesn't matter.
So lets say the daily rate is five dollars for month l, and that month is 30 days. So out of a 200 dollar payment, 150 goes to interest and 50 goes to principle. At month 2 you will owe 14,950. Because you lowered the principle, the daily rate is now 4.80, for example. (Not using exact nbrs; just trying to demonstrate how it works). So month 2 is 4.80 x 31. So now the interest is 148.80, and the principle is 51.20.
After month 2, the original amount you owe is again reduced, but only slightly.
Month 3 the daily rate might come out to 4.75. You can do the math.
There is where making extra payments comes in. Any money over and above the monthly interest amount is applied to principle. As the principle goes down, so does the daily rate.
This was my understanding of what I was told anyway. Sees to be correct, as I go online and look at the amortization statement and see the numbers change each billing period.
Hope I explained it right and that it helps.
