RE: Loan Interest Payment Puzzle / Question
May 2, 2017 at 10:28 am
(This post was last modified: May 2, 2017 at 10:54 am by Jackalope.
Edit Reason: Ugh, grammar fail
)
It's pretty clear what the answer is mathematically, but I think you can noodle it out another way.
Each month, I have X dollars I can apply to competing debts above and beyond what the minimum payments are. Here's the thing - by making that principal payment today, you are only avoiding future interest on the amount of the principal payment.
The total amount of the loan is irrelevant for the purpose of applying this one principal payment - you're paying interest on that money regardless. You avoid more future interest on the amount of this payment by applying it to the loan with the higher interest rate.
Repeat this exercise each month and I see no reason why the analysis should change.,
Each month, I have X dollars I can apply to competing debts above and beyond what the minimum payments are. Here's the thing - by making that principal payment today, you are only avoiding future interest on the amount of the principal payment.
The total amount of the loan is irrelevant for the purpose of applying this one principal payment - you're paying interest on that money regardless. You avoid more future interest on the amount of this payment by applying it to the loan with the higher interest rate.
Repeat this exercise each month and I see no reason why the analysis should change.,
