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03-24-2016, 01:13 PM #1
Why loan interest is "front-loaded"
Lots of people seem to be confused about why so much of their debt payments (car or mortgage loans particularly) go towards interest. I made this short video to help try to explain it by comparing it to more simple loans (where you pay it all back at the end of the term.)
Hopefully this will help clear things up for you if you've been confused!
03-24-2016, 08:19 PM #2
- Rep Power
Personally, I wouldn't click on a video posted by someone I don't know.
Additionally, in many cases, front-ended interest is now illegal.
03-26-2016, 09:12 AM #3
Gave up after less than one minute, when OP calculated the interests of a five year loan to be (loan amount)x(interest)x5.
Please look up compound interest: https://en.wikipedia.org/wiki/Compound_interest
I've never seen this front-end interest stuff in Norway. Our beloved nanny state has probably banned it, something that is easy to do when you own the banks. What the OP is describing seems to be much simpler than that. The simple reason you pay more interest in the early years of paying down a loan, and less towards the end, is that you owe more money in the beginning. If you pay less than you owe in interests, your loan will increase, and you will pay more and more interest.Debt: -$60 000
Savings: $43 200
Net total: -$16 800
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