Say there’s a loan for $10,000. The interest rate is 11%. Monthly payment is $300.
How can you keep interest at bay, and not pay thousands in interest by the end of it all?
Is there a formula to figure out how much *extra* to pay per month, in order to… cancel out? the interest?
Is this even possible? Is this even how interest works?
Honestly, I don’t get the concept at all. Explain it to me like I’m five.
In: Economics
Everyone here explained the mathematics regarding loans and interest but I feel like the true reality isn’t being spoken.
Whether you’re really well paid or just scraping by, paying off a loan sooner requires sacrifice of excess amenities. It sucks and it’s hard but if you don’t want to be stuck in a seemingly endless loop of payments for many years, you have to pay with everything you can spare.
The only reason to pay just the minimum is circumstantial on a month-to-month basis like using that excess cash you spared to make investments(starting a business, learning classes for better job prospects, etc.) that will outpace your loan interest or for emergency spendings. You should always try to pay higher than the minimum if the goal is to relieve yourself from the loan.
Also do not believe what they state is your minimum. Some times they quote that as just barely above the cost of interest and a bit of the principal. The true minimum is what you can afford to pay monthly consistently that is also above the cost of yearly interest and what they stated as your minimum.
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