Strategies in reducing the term of loan and interest paid

[Guest]

I am looking to borrow somemoney over 25 years. 250,000 with a 7 percent interest rate. I want some suggestions on how I can reduce the term and interest paid. I have come up with
a)incresing the size of the regular payment
b) lump sum payments
c)changing the timing of the regular payments

Can anyone suggest any others?

By the way when paying back loans do banks only use compound interest?

thanks in advance

 

[stapel]

The answer will vary with the size and timing of the various payments, as well as the terms of the loan agreement. What information is provided in the exercise?

Thank you.

Eliz.

 

[TchrWill]

Re: Strategies in reducing the term of loan and interest pai

I am looking to borrow somemoney over 25 years. 250,000 with a 7 percent interest rate. I want some suggestions on how I can reduce the term and interest paid. I have come up with
a)incresing the size of the regular payment
b) lump sum payments
c)changing the timing of the regular payments

Can anyone suggest any others?

By the way when paying back loans do banks only use compound interest?

Bank loans are based on compound interest.

Given you sign up for a N year loan with monthly payments, your options for paying out less in the end are:

a)Put down a larger down payment on whatever you are buying thereby reducing the required loan amount
b)Make weekly payments if allowed by the bank
c)Make larger monthly payments if possible, without penalties
d)Make timely principal reduction payments if allowed by the bank with no penalties
e)Keep your eyes open for lower interest loan rates where you can refinance, if without penalties

 

[tkhunny]

The least interest will be paid by not making the loan.

Compound interest is one way. You must read the terms of your loan very carefully in order to discern it completely.

Paying off early MAY reduce your interest. Again, check your terms very carefully.

 

[Denis]

Well, ALL interest is really "compounded"...

I borrow $100 for 1 year at 4%: I pay back $104 at end of year;
sure looks like 4% simple...

I borrow $100 for 1 year at 3.92848...% compounded monthly:
at end of year, I pay back $104; hmmm....

Honest John, your used car dealer, will surely quote 3.92848.... :idea: