Quote:
Originally Posted by eikond
The concept of "front-loaded" interest is a common misconception. It is possible that an lender could charge more than straight interest early in the loan.. but they don't.
Mortgage and auto loans are all straight-forward simple interest loans. You pay interest based on the outstanding principle. Clearly the principle is higher early in the loan so the amount of interest you pay is highest early in the loan. For this reason many people believe "incorrectly" that the bank is collecting a higher rate in the beginning than they do in the end.
A simple financial theory is that you should pay in cash if you are able to do so in order to avoid paying interest. A more refined financial theory is that having debt at a low interest rate frees you to do other things with your money which can earn you a greater return than you are paying on the interest of the loan.
What you choose to do is completely up to you...
As for myself.. I'm saving up for a down payment on a house, so I'll be financing as much of the purchase price as I can. I'll probably do 2.49% for 60 months rather than the 1.99% for 48 mentioned earlier.. but that's just personal preference.
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You never heard of a negative amortized loan?
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