The problem with this is that when you pay additional principal early in the process, it usually also decreases the life of the loan. Lenders seldom reduce your monthly payment on an established loan even when you have made a lump sum additional principal payment.
Elizabeth Richardson
OK, this is making sense. Thanks for clearing it up. It cost less per year.
I'm using overall cost of the loans. Obviously any amount paid over the initial $20,000 will be interest.
Over different periods of time. The amortizing payments are only making it harder to see that.
Pay off the car loan first and fast. Google Dave Ramsey debt snowball :-)
Cash Flow
Careful quoting Dave. This was the scenario;
1) Car loan ~$13,000 at 5.49% interest rate. 2) Student loan ~$38,000 at 3.875% interest rate.If the dollar amounts were swapped, he'd still say to pay the $13,000 (at 3.875%) first, even though it's at a lower rate. This is his premise, paying the lowest dollar balance first. I respectfully disagree at
Pay off the auto loan first.
Paying of loans, starting with the smallest balance first results in the most rapid improvement to cash flow.
Paying of loans, starting with the highest interest rate results in the least amount paid in finance charges.
Paying of loans secured with collateral results in the release of collateral so you are free to use it as you wish.
In this case all these simple statements point to the auto loan.
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