Your Questions About Save Loan Interest

Betty asks…

Is my car loan interest compounded daily?

I purchased a new car last year. I was told it was a 60-month loan. In the past, I have had fixed rate loans for my autos and each month the principal payment goes up and the interest payment decreases. On the loan I have currently, the amount of the monthly payment towards the principal seems to vary depending on the day of the month that the payment is applied. Some of the earlier payments have a greater amount applied to the principal than later payments.

Does anyone know what kind of loan this is? and will it be paid off in 60-months if the principal payment varies in this way?

John answers:

Simple interst loan. Compunded daily.

If you make the payment 3 days early, you pay 3 days less interest.

If you do this one time, your payment at the end of 5 years will be less than if you paid on the exact day each month.

If you do this regularly, or add $1.00 to each payment, you may save a few hundred dollors over the 5 years.

Play with amortization stuff on web sites or Excel. It;ll surprise you the difference a few days and a few dollors a month will make.

Good Luck

Carol asks…

How much of my payment will go towards interest?

I owe about 69K on my student loans. I pay like $380 a month on the thirty year plan. I’ve saved up like 20K. If I put that 20K on my balance, how much will that reduce the amount of money going towards interest each month.
5.25. Thanks.

John answers:

If you have other higher interest debt such as credit cards. Pay them off first. You can refi (consolidate) a student loan to get a lower interest rate, but not so with the others…

Steven asks…

About a car loan’s interest?

My wife’s loan rate for her car is 7.70% she now owes 12,100 on her car and since we got married I can get he a loan at 5.24% is it really going to save me some money in the long run or is it such a small amount its not worth it?
I have excellent credit, And we both ave 4 years left on our cars mine is 18,000 at 6.9%. Would it be worse to roll them into 1 big payment for the 4 years? or 2 seperate payments at the 5.24% rate

John answers:

Assuming you have a 5 year car loan, and still have 5 years left on the loan: On the 7.75% interest loan you will pay a total of $2,533.94 in interest over the life of the loan. On the 5.24% interest loan you will pay $1,680.47 in interest for a difference of $853.47. The further into the payment of the loan (year 2,3,4) the amount saved will be smaller. Keep in mind if the refinance has any origination fees for the new loan, this will also eat into the amount saved by refinancing.

Chris asks…

taking a loan for new car?

have loan for new car over 3years if pay off before 3 years will i save money

John answers:

You have to ask the loan company for a settlement figure. There will be a saving in interest charges.

Lizzie asks…

When you consolidate student loans, does it eliminate the interest that has accrued?

I have about 17,000 dollars in student loans (half private and half government). I spoke with someone from Direct Loans and was told that if I consolidate my private loans with another company, it is as though the loan begins and my payments begin again. Therefore, it is best (in her words) that I consolidate with them so I don’t lose my previous payments.
1. Does that also mean that any interest that accrued while I was in school (on both my private and government-funded loans) would be eliminated?

2. Also, can I consolidate both private and government loans together or do they need to be consolidated separately (I have 2 in each category)?

3. Lastly, can you consolidate government loans with any other lender other than Direct Loans?

I know these are a lot of questions, but I really need some guidance with this. Thank you in advance!
Wow. This is a lot of information. Thanks!
I also want to mention that the person I spoke to at Direct Loans said that I could consolidate my loans and sign up for an income-contingent payment plan (about $75 a month instead of the $120 I am paying now) and that after 10 years, it would be “forgiven” because I am in the public service field. I don’t think I have to consolidate to be able to apply for this, but would I be paying less in the long run if I consolidated with direct loans and got on an income-based repayment plan vs just doing what I am doing now (paying the $120 w/o consolidating)?
Thanks for your help so far, it really is my goal to pay this off as fast as possible (within my means).
another question, last one I promise: If I decide to not consolidate, does that mean that I will always have a variable interest rate?
I understand not wanting to consolidate because it stretches out the life of your loan, but can’t you consolidate to get a fixed (and hopefully lower) interest rate, but then make the same payment. Are you not able to pay off consolidated loans early?

John answers:

Kim:

1. No, accrued interest is not erased – if you choose to consolidate, you’ll be refinancing the full amount that you owe as of the day that the consolidation takes place. That includes all unpaid interest that has been added to your debt.

2. You can not consolidate both federal and private loans together. That’s not bank policy – that’s federal law.

3. In fact, the only consolidation loan that you’re likely to find right now is the Direct program for your federal loans (ONLY). I don’t know of a single lender that is consolidating private loans, and I’ve done the research several times now. If you want to verify a few examples of lenders who are not consolidating private OR even government loans right now, you can check here: (Ed Fed) http://www.edfed.com/graduate-loans/graduate-student-loan.php , here: (Citi) https://www.studentloan.com/pay_your_loans/federalconsolidation.htm and here: (Sallie Mae) http://www.salliemae.com/after_graduation/manage_your_loans/consolidate_student_loans/federal.htm

Do yourself a favor – sit down with someone who really understands the consolidation process before you decide to take that route. As a process, consolidation is NOT designed to save you money – in fact, it will cost you a LOT of money in the long run. Consolidation cuts your monthly payments by stretching your repayment term over a a much longer period of time. There’s one simple rule of borrowing, and that rule is this: The longer it takes you to repay the loan, the more you’ll pay in interest.

Your $17,000 in student loans will require a payment of a couple of hundred dollars a month – depending on the interest rate on those private loans that you mentioned. If you pay that couple of hundred dollars for 10 years, you will have paid back about $24,000 by the end of your repayment – the $17,000 you borrowed, plus about $7000 in interest.

If you consolidate the $17,000 to a 20 year repayment plan, your monthly payment will drop about $75 per month (somewhere around $125), and you’ll pay back more than $32,000 – the original $17,000 plus almost that much again in interest.

Consolidation is an option for borrowers who have fallen behind on their loan payments, and who are considering alternative payment plans to avoid default. Otherwise, it’s not a very attractive financial strategy. If you are having temporary difficulty repaying your loan, you should talk to your lender about a financial hardship deferment and/or other alternative payment plans.

Good luck!

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