Financing question

[jerseyduke]

Ok I know the arguments against financing, but i have a question about it.

If I finance 10k or a purchase (at Disney's bargain rate of 8.99%) for 5 years, my monthly payments are 207.54.

Amortized the first month payment breaks down:

74.92 Interest
132.62 Principal
remaining balance: 9867.38

Is this how Disney does it? If I pay it off(the whole) month 2, is my balance 9867.38?
Or, do they do it such that all 60 payments over the 5 years are the same in terms of how much is interest, and principal is paid every month. Forgive me I am not good with financial lingo, but I guess this would be a non amortized approach?

 

[chalee94]

Or, do they do it such that all 60 payments over the 5 years are the same in terms of how much is interest, and principal is paid every month.

i've never seen anyone do it this way.

generally, you are paying down the principal and the interest declines over time.

 

[OKW Lover]

Agree with chalee94 that DVC does it the way any mortgage works.

 

[jerseyduke]

I kind of figured as much, but it is not my area of expertise, so I wanted to clarify.

Because while there is no "prepayment" penalty, the interest amount is calculated based on the length of the loan, so you are paying interest based on 5 years for the first payment, even if you pay it off in month 2.

So, that leads me to this question:

The interest rate is 8.99%. Is it ever really 8.99% (except for maybe right smack in the middle of the loan term). Is it effectively higher in the first months, say like 10.99 %, then lower in the end, say 6.99? Such that it averages out to 8.99% (ie: effective rate of the loan becomes 8.99%)

 

[OKW Lover]

The interest is calculated on the outstanding balance so you are always paying the quoted rate.

 

[jerseyduke]

yes indeed, just did the math.

Thank you for the responses.b