follow the bouncing ball

CavemanCharlie wrote:
Soooo, you are taking out a long term loan, with a lower interest rate, then you are paying off (whatever) sooner without paying a penalty or without paying the whole rate of interest ?

Humm, I will have to give this some thought but, it sounds like we are setting ourselves up for another economic collapse.

The banks ; on there books ; think that they will have X number of dollars coming in over X number of years. If they don't get it because everyone pays off their loan early then that will be a problem.

But, I am not a economist. I am just thinking out loud.

Loans are discounted on the books to account for early payoff. If the loan actually does survive to maturity that is "found" money. The banks really don't care if you pay off early. That just makes the money available for another loan.

Most loans from reputable lenders, lending to people with decent credit, have no pre-payment penalty. Been that way as far back as I can remember.

Mike

Soooo, you are taking out a long term loan, with a lower interest rate, then you are paying off (whatever) sooner without paying a penalty or without paying the whole rate of interest ?

Humm, I will have to give this some thought but, it sounds like we are setting ourselves up for another economic collapse.

The banks ; on there books ; think that they will have X number of dollars coming in over X number of years. If they don't get it because everyone pays off their loan early then that will be a problem.

But, I am not a economist. I am just thinking out loud.

CavemanCharlie wrote:
Good post. But,,, I have a question. If you take out a long term loan and then pay it off early don't you still have to pay the full interest that would be on the loan???

Unless the loan specifically states that there is a pre-payment penalty, no you don't still have to pay the full interest. Another option is a home equity line of credit. That is what we used to purchase ours. Technically speaking we have 30 years to pay off our camper, we have under 4% interest AND the interest is tax deductible. That being said, we are still aiming to pay it off within 4 years and are still on pace to pay it off that early.

Good post. But,,, I have a question. If you take out a long term loan and then pay it off early don't you still have to pay the full interest that would be on the loan???

No, you don't have to pay the full interest. I have a 10 year loan and have paid double payments on it for 3 years. There is no pre-payment penalty on it. Dealers around here can get lower interest rates with longer term loans then if I would have went with local banks/credit unions for 5 years!

jus2shy wrote:
Another note is that some people purposefully take the longer term finance, with the full intent of paying off early. I personally do this (done it for many things, including my student loan), just in case events in life come up and I need to cut back on paying bills, I have that flexibility. Currently planning on a spring purchase for a trailer myself and plan on taking the long term, just so I can remain flexible. Truck is almost paid off and I figure that I'm paying an "Opportunity" cost to get a trailer sooner rather than later, as kids don't remain toddlers forever and I'm personally tired of the tent camping lifestyle. Once truck is paid off, trailer becomes the "Vehicle" monthly bill.

What I'm certainly sure most people can agree to on this board is that many people out there are financially illiterate. They don't understand the concept of an opportunity cost (interest on most debts), and what you're supposed to do when you take out that loan (invest said cash so it can make money, using your dollars to work for you). A lot of people do tend to stretch themselves living paycheck to paycheck. Some in my family included (no matter what I advise). I remember reading a few articles where only 25% of Americans can come up with $1k or $2k within a couple weeks to pay for an unexpected event. That's just appalling. I think more "Finance" classes should be offered in our school curricula so that people don't get swindled at car dealerships, home purchases, or even RV purchases. So that people can understand what it truly means to "Afford" something. I could go out and buy a Porsche 911 GTS. But I know I can't afford a Porsche 911 GTS, not if I want to hit my other life goal of early retirement. Good ol' give and take :).

Good post. But,,, I have a question. If you take out a long term loan and then pay it off early don't you still have to pay the full interest that would be on the loan??? A lot of institutions will gladly loan you money long term but, the interest rate over the term of the loan is so big that you could have bought the original purchase twice.

Back in the day, just after I graduated high school some friends of mine got married and took out a loan to buy stuff. Like a Television for example. They took out a long term loan and made the minimum payments. After awhile they figured out that they were never paying down the principle debt. All they were doing was paying the interest. They had paid for the TV twice. They had to get a lawyer to get the mess all straighten out. Once he got involved the loan lending institution gave up. After all they had gotten their money back X2.

Just because someone takes a 12 year note does not mean it will take twelve years to pay it off. As others have said, I take the loan terms that are favorable to my position. I pay them off early but have flexibility to pay less some months if other issues or opportunities come up. The only loan I did not pay early was a car loan I got for 0%. No way I am going to pass up the opportunity to use their money for the whole time.

Buying used is a great option, if what you want is available. It was for me, but not for my kids. We looked for 6 months until we found their EcoCamp. Nothing around here was like it and it hit all the buttons for them. They are happy with their purchase, happy traveling in it, and basically happy folks all around.
If someone is satisfied with their decision and it has no bearing on my life, who am I to knock them for it? Opinions are one thing and criticism a whole 'nother.

^^^^^^^^^^^^^^^^

this is what we do and have done for 30 years.

Another note is that some people purposefully take the longer term finance, with the full intent of paying off early. I personally do this (done it for many things, including my student loan), just in case events in life come up and I need to cut back on paying bills, I have that flexibility. Currently planning on a spring purchase for a trailer myself and plan on taking the long term, just so I can remain flexible. Truck is almost paid off and I figure that I'm paying an "Opportunity" cost to get a trailer sooner rather than later, as kids don't remain toddlers forever and I'm personally tired of the tent camping lifestyle. Once truck is paid off, trailer becomes the "Vehicle" monthly bill.

What I'm certainly sure most people can agree to on this board is that many people out there are financially illiterate. They don't understand the concept of an opportunity cost (interest on most debts), and what you're supposed to do when you take out that loan (invest said cash so it can make money, using your dollars to work for you). A lot of people do tend to stretch themselves living paycheck to paycheck. Some in my family included (no matter what I advise). I remember reading a few articles where only 25% of Americans can come up with $1k or $2k within a couple weeks to pay for an unexpected event. That's just appalling. I think more "Finance" classes should be offered in our school curricula so that people don't get swindled at car dealerships, home purchases, or even RV purchases. So that people can understand what it truly means to "Afford" something. I could go out and buy a Porsche 911 GTS. But I know I can't afford a Porsche 911 GTS, not if I want to hit my other life goal of early retirement. Good ol' give and take :).