Your Questions About Save Loan Interest

John asks…

How much do you save with an interest-free loan?

For example, an interest-free student loan. I want to study overseas (I live in New Zealand) but you can’t get interest-free loans that way :( If I took out a normal loan, with a typical interest rate, give me some scenarios on how much interest would accumulate? Answers can be in US dollars

John answers:

If you have to borrow money to study abroad, then the interest that you pay on that loan is the cost of that loan (or the interest free loan is worth that much to you).

For example; 10k borrowed at 10% per year costs 1k for each year of the loan.

10k borrowed at 0% per year costs nothing for each year of the loan.

This means that the interest free loan is worth 1k per year of the loan.

William asks…

Is it too late to save money on a high interest car loan?

I financed my 01 jeep wrangler with chase bank one year ago, my interest rate is 22% ,my payments are 345 a month, I have two years left to pay if I continue to pay this amount. Can I still save money on interest by paying more towards the principal? And what would I have to pay if I wanted to pay it off in the next 6 months ? Any advice will be appreciated

John answers:

You should be able to track the remaining balance over the phone or online, once you submit an extra payment to the principal the automated system will let you know how much is it to payoff the car and by what date. What you can do is just divide the amount each time you make a payment.

Joseph asks…

If I pay double the amount of my car loan per month do I save money on interest or not?

For example, I have a car loan of 30,000 dollars at 7% interest and it costs 660 per month. If I pay 1200 per month am I going to save money on interest fees or am I just paying the principal+interest fees earlier? Are all car loans that you pay more than the minimum everymonth like this?


John answers:

Pay ahead, pay now, pay it off. $600 per month is obscene.

If you actually invest $600 per month, you’d have over $109,000 in 10 years at an 8% return.

What’s that car going to be worth in just 5 years? (answer: about $5,000)

Smart money move!

Helen asks…

when paying a car loan early do you save the interest on the whole loan or do you have to pay all the interest?

let’s say the car cost $18,000 and with interest it goes to $22,000 but that’s for a loan of 3 years if you pay the car off early in about a year. Do you have to pay the whole $22000 or just the remaining balance with it’s interest?
thanks in advance

John answers:

Auto finance is what I do for a living and vehicle contracts are simple interest loans so if you pay one off early there is no additional interest included in your payoff quote.

Maria asks…

how to save on short term capital gains, gain is only on paper if i take into account home loan interest paid?

nearly 85% of payment for the property was paid in march 2007 and the property was sold in August 2009, is indexation taken into account? Can i invest only to the tune of capital gains in land/ flat to avoid paying capital gains? is not the home loan interest taken into account while arriving at capital gains?

John answers:

I think you need the opinion of an actual accountant. It will be worth the small consultation fee.

If this was your primary residence in the US, the capital gains could be deferred if you moved into something more expensive.

Frankly, count yourself lucky that you took a gain at all on something that you bought two years ago.

Any interest you paid on a loan would have been deducted previously, so it wouldn’t change the cost basis of the property. If you made substantial improvements to it (not just repairs), that would be added to the basis. For example, if you paid $100k, and spent $4k replacing ratty old carpet, that doesn’t affect the basis, it’s still $100k. But if you spent $10k on upgrading to wood floors, the basis is now $110k.

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