Sound like a good deal?

Huntindog wrote:
#1 This is a common misconception that has a basis in fact.

#2 Generally (maybe always now) interest on a loan is calculated daily.

#3 So if you make a payment every two weeks, you will pay interest on each payment.....

#4 But that interest is based on the outstanding balance, and days since the last payment.

#5 So even though you will be paying interest each time, it will be LESS than it would have been.

#6 IOW, it makes no difference in the total interest paid.

#7 Where the basis in fact originates is on a home loan with an escrow account for taxes and insurance. In this case, your extra payment can end up in the escrow account, where it will not reduce the loan at all.... This is when you need to specify where the extra money is to go.

#1 No, not a "misconception" on my part.

#2 Loan interest IS NOT and NEVER has been and NEVER WILL BE "calculated daily" period.

We are not talking about your standard "bank accounts" like checking or savings where the bank requires a minimum average balance or they charge you or in the case of savings not pay interest.

Interest on a loan is calculated ONCE PER PAYMENT PERIOD, not daily. You payment period could be twice a month or once a month, banks have no reason to recalculate daily.

#3 :? Don't understand as to why anyone would want to pay every two weeks if their loan term is ONCE A MONTH which is typical AND standard payment schedule.. MUCH better to simply INCLUDE an extra amount TOWARDS THE PRINCIPLE ONLY (AND YES YOU MUST SPECIFY PRINCIPLE FOR ANY LOAN). You just making things even more muddy..

#4 Yes, your interest owed IS calculated from the "outstanding balance", but it is done ONCE PER PAYMENT TERM.

You CAN however REQUEST a loan payoff amount at ANYTIME and that is where they will recalculate the interest owed prorated from the last payment.

#5 While you COULD do this, WHY would you pay P&I when you can specify HOW that extra money can be applied! Think about this for a moment.. If your loan payment is $200 and $100 of that is only being applied to the PRINCIPLE that means your balance is decreasing in half which means you end up paying in MORE INTEREST..

Think about how much faster the loan balance gets reduced if you pay $400 AND SPECIFY the $200 EXTRA is to go towards the loan balance!

Banks by default treats any extra funds as an advance towards your NEXT scheduled payment and applies it as such.

Yes, you will pay your loan down faster but not as fast as specifying how to apply the extra funds.

#6, IT DOES make a HUGE difference on how extra funds are applied, folks are just to lazy to think or do anything about it..

#7, We are not talking about "home loans" however the SAME CONCEPT OF SPECIFYING HOW THE EXTRA FUNDS ARE APPLIED WORKS ON ANY OPEN ENDED LOANS INCLUDING AUTO/RV/PERSONAL LOANS.

By the way, ZERO % loans are always CLOSED ENDED LOANS, if you pay them off early you save NOTHING, the interest is already baked in because they often take away the factory "incentives" which would have lowered the price of your purchase (FINE PRINT FOLKS, READ IT BEFORE SIGNING!)..

Found a Amortization calculator which includes optional extra payment (they call it "prepayment") which you can specify the amount extra and what effect it has on your loan term and how much interest over the loans life..

You can check it out HERE