3rd grade math question I should know

[cbmeeks]

Ok, I'm an idiot. :-P

Seriously, I just want to make sure I understand this correctly.

Let's say I borrow $100 for 10 months interest-free. That means, I pay back $100 at $10/month for 10 months.

Now, let's say that I do the same thing with 10% interest. Here is where I get confused.

Do I take the 10% of the principal ($100) and add that to the monthly payments?

Example: Each payment would be $10 + (interest*remaining principal).

Payment:
Month 1: $10 + $10 (interest)
Month 2: $10 + $9 (interest....10% of $90)
Month 3: $10 + $8 (interest....10% of $80)

etc...

Which means I paid $100 + $55 in interest ($155).


OR


Would it be $100 + 10% divided by 10 months. ($110 / 10) which would be
$11/month?

I seem to think the first is the norm. Especially for car-loans. When I look on my statement, my interest is never the same...it's SLIGHTLY lower (and I mean SLIGHTLY).


I am trying to figure out how quickly I can pay off some of my loans by sending in extra payments.

Right now I am getting RAPED at 21% on a car loan and 17% on another!! ARGH!!! My payment for the 17% is $256/month and only about $100 goes to the principal!!

I'v recently received a raise (new job) and I will have about $1000/extra a month that I want to slam at these.

Thanks for any tips/suggestions!

cbmeeks

[RJB1180]

It depends on a lot of things, including the terms of your loan, check out bankrate.com for a lot of caluclators

[Ima saver]

Ok, if you borrow $100 at 10% for a year, you will pay $10 in interest for the entire year. That means that your first month's payment of $10 will also have 83cents in interest. I do think you need to take your extra money and pay off your high interest loans as soon as possible.

$100 x 10%= $10 divided by 12 months=.8333 cents per month.

[34saving]

Usually the 10% in your example is a yearly interest rate, so your second senerio is the more likely one (though it's not exact it's close enough). RJB's calculators will probably help. If they don't do a search for an amoritization schedule (often found on home sites) and it will show you how each payment gets credited.

[cbmeeks]

Thanks guy...the bankrate calculators are perfect.

The amoritization table was what I was looking for.

I am trying to decide which car to pay off first. According to DR, you pay off the smaller loan first unless the principals are close...then you pay off the one with the higher interest.

So:
Van $13500 @ 21.23% ($370/mo)
Car $11500 @ 17% ($256/mo)

I should go for the van first because the raping is much higher there. :-)
Plus, putting $1370/mo on the car should knock that out pretty quick.

[Ima saver]

I would go for the van first also, the amts owed are similar but 21% interest for a vehicle is terrible? Why did you get such high interest rates?? Rigt now you are paying out $238.83 a month in interest on the van alone!! You are paying $162.91 per month on the car. ( I don't know how to use internet computers, I do it the old fashioned way) So you are paying out about $400 in interest every month.

[cbmeeks]

Originally Posted by Ima saver

I would go for the van first also, the amts owed are similar but 21% interest for a vehicle is terrible? Why did you get such high interest rates?? Rigt now you are paying out $238.83 a month in interest on the van alone!! You are paying $162.91 per month on the car. ( I don't know how to use internet computers, I do it the old fashioned way) So you are paying out about $400 in interest every month.

The reason is because I've been an idiot.

First, my wife lost her car because of different reasons. We had a little in the bank. My credit isn't that good. So, I found a minivan (that we do like) but because of my credit, the interest was high. We put down about $2000 and financed the rest.

Then, 5 months later...we had about $2000 in the bank (after tax refund) and my car died. I should have bought a used car but we had to have something now (we work too far away to car-pool). So, I put $2000 down and financed a new car.

That's the history. Oh, that $400 doesn't even count my mortgage, credit cards and student loans.

cbmeeks

[Ima saver]

Well, we all make mistakes and you are learning. Paying for vehicles is something we all have to do. Many would argue about my choice of vehicles! You have some extra money coming in now, and you can get these vehicles paid off. Good luck!!

[cbmeeks]

Thanks.

When we pay off those cars, CC's and student loans, we are going on vacation!!!!!

cbmeeks

[Ima saver]

Make sure you have an emergency fund first!!

[cbmeeks]

Yup. I'm on the baby steps. Step 2.

Next week, I will put the remaining money into savings to get the $1000.

Then, I start the rapid payoffs (starting with CC's first)

[poundwise]

Originally Posted by cbmeeks

The reason is because I've been an idiot.

That's the best answer I've seen in a long time.

All I can say is, you aren't alone! Make a good plan (definitely pay the van first) and stick to it! Best wishes.

[Snoopy2645]

I have been an idiot too so you are definetly not alone!!

[Ima saver]

Let us know how you are doing!!