Loan question

[cinderella97]

We purchased an add on and fianced thru Disney. Last month I paid a large amount on the principle. Would I expect to see my monthly rate decrease or the length of the loan decrease? When I see the amortization schedule on my loan, I still have the same amount of years left. I thought the lenght of the loan would have decreased.

 

[RobDoc]

The length of the loan will decrease by the amount of the reduction in principal. It might not show in the amortization because the loan agreement was for a specific time period, but it will be shorter as long as you continue making scheduled payments. The payment amount does have a fixed minimum, so your payment amount will not decrease when extra principal is paid, but the loan will be paid off earlier than scheduled.

DVC loans are simple interest. The interest you pay will be based on the remaining principal owed and any payment beyond the interest due will reduce the principal further.

Enjoy!

 

[JPS439]

The rate will stay the same, they want x amount per month until the loan is satisfied. What should change is the amount of months it takes to complete the loan.

Look at the ammortization table again, the member website will give you the option of running the table for all 10 yearsof the loan, but the month to month payment should run out before then.

Atleast that's what I've got going on. My loan is "due" in march of 2017, I can select the chart to end in 2017 but I've made several principal payments so the last payment when the schedule is expanded is next july.

 

[bumbershoot]

Just in case you want to play around, see what changes based on various things, you can go to a debt calculator (I've used whatsthecost dot com) and play with it. It's fun!

 

[cinderella97]

The rate will stay the same, they want x amount per month until the loan is satisfied. What should change is the amount of months it takes to complete the loan.

Look at the ammortization table again, the member website will give you the option of running the table for all 10 yearsof the loan, but the month to month payment should run out before then.

Atleast that's what I've got going on. My loan is "due" in march of 2017, I can select the chart to end in 2017 but I've made several principal payments so the last payment when the schedule is expanded is next july.

Thank you! I just shortened my loan by 3 years 4 months! We'll be paid off
1/2015 - dd graduates HS 6/2015!!!

 

[lark]

When you do this, you're not only taking principal off the back end, you're also increasing the amount of each monthly payment that goes to principal.

Just as an example, if you borrowed $20,000 at 10 percent for a 10 year loan, your monthly payment would be $265. Your first payment would be about $170 in interest and $95 in principal.

If you paid down $5,000 in principal, your monthly payment would stay the same ($265), but the interest component of the first payment would drop to about $125 and the principal component increases by $45. So, now you're paying $125 in interest and $140 in pincipal in your monthly payment. This has a compounding effect -- the principal component in each susbequent payment also increases because of the prior month's increased principal payment.

So, the bottom line is that by paying off 25 percent of your loan, you shorten the loan way more than 25 percent of the duration -- closer to 35 percent. Every extra dollar that you can put to principal has the same compounding effect. Basically, on a 10 year loan at 10 percent, a dollar paid today saves you about 2.2 dollars in the long run. (That's at the beginning of the 10 years -- the further you are into the loan when you pay the extra dollar reduces this number.)