I took out a personal loan and each payment is about $120 a month. However, if I have 200 dollars do I put the extra money towards Principal or interest?? why?
2006-10-05 06:22:19 · 8 answers · asked by Anonymous in Business & Finance ➔ Personal Finance
Principal...always. Paying down the principal will lower the interest portion and pay off the loan faster.
2006-10-05 06:24:33 · answer #1 · answered by J O 3 · 1⤊ 0⤋
the principal.
it ultimiatly lowers your over all loan amount
for example most payemts are broken up like this:
payment: 120 (of that 120$,)
principal 40$
interst: 80$
you pay interest because thats how banks make money off of
you taking a loan out with them. The "principal" means that is the
doller amount that gets subtracted from the loan amount, you WANT any extra money you pay to go to PRINCIPAL. there is
interest on all sorts of lenders, credit card companies, banks,
credit unions, ect. the interst rate (or the rate of how your interest
will be dispurded is decided by your fico(credit) score, debt-to-income ratio, and other things, all banks are a little diffrernt.
they each have their own "lending matrix's" of what and how we can lend you. for example, for most banks, the lower the DTI
ratio, the better the rate you get, just like for mortgages, when someones looking to refinance, the lower the loan-to-value
the better the rate and points
hope this didn't confuse you.
2006-10-05 13:33:32 · answer #2 · answered by Jenster*is*flipping*you*off 6 · 0⤊ 0⤋
Before you do anything check with the loan company in case there are early repayment penalties. Some companies charge if you do this as they are losing out on interest. If there is no fee than they should accept the repayment off the principal sum. If they do not save the money and let the loan take it's course. Also bear in mind that if you do make a repayment and then find you need the money for something else you can't redraw it. My advice is to pay off credit cards first if you have any.
2006-10-05 13:32:09 · answer #3 · answered by quatt47 7 · 1⤊ 0⤋
Case 1. You can invest the money elsewhere for a higher return than the interest you are paying on the loan. In this case do not pay extra on your loan! Invest it instead, you will make out better in the end.
Case 2. You cannot invest the money elsewhere for a higher return than the interest you are paying on the loan. In this case pay the extra to principal. That way the interest you are charged will be compounded from a smaller amount, meaning you will end up paying less in the end, assuming there are no pre-pay penalties.
2006-10-05 13:32:06 · answer #4 · answered by 1,1,2,3,3,4, 5,5,6,6,6, 8,8,8,10 6 · 1⤊ 0⤋
Loans pay the interest first...for the whole loan. Only then does the principal get paid. If you pay off the principal faster, they readjust the amount of interest which needs to be paid on the whole loan. And you gain that much for the rest of the loan. You are rise to pay off the loan as fast as possible. Send in the regular payment w/ a note that the extra amount is to be applied to principal.
Kudos
2006-10-05 13:27:41 · answer #5 · answered by Joe Cool 6 · 0⤊ 1⤋
Anything over your scheduled payment goes towards the principal. That way even though the next payment is going to be the same, since those were the terms you agreed to, you won't have to make as many payments since you are putting more money towards principal, thus lower interest payments.
2006-10-05 13:24:24 · answer #6 · answered by Chris B 3 · 1⤊ 0⤋
Principal, that is the amount that you borrowed. You only pay interest if you make the lowest payment. The lower the principal the lower your payment will be. They only charge you interest on the total amount.
2006-10-05 13:25:05 · answer #7 · answered by Anonymous · 1⤊ 0⤋
I am a financial counselor and I think you should be trying to settle those debts for as little as possible. The int. on that loan will soon go up and your loan will actually go up, and you will then be paying more than what you primarily owed. So be careful is all I can say
2006-10-05 13:39:04 · answer #8 · answered by yagurlbubblez 3 · 0⤊ 0⤋