Conference nyoss1::market_investing

Note 459 has the formula for computing monthly payment given 
principal, interest rate and number of payments.

Here's a really stupid BASIC program that does the calculation

100	input "Principal amount "; principal

110	if principal = 0 goto 400

120	input "Annual interest rate as % "; int.rate
	int.rate = int.rate / 100.
	input "Number of monthly payments "; periods%

200	print "Payment = "; PRINCIPAL /					&
		((1-(1+(INT.RATE/12.))**-PERIODS%) /			&
		(INT.RATE/12.))
	print

300	goto 100
400	end

	Invalid assumption: car loans amortize the same way 
mortgages do.

	From what bankers have told me, the first half of the 
term goes more towards the interest, and the second half goes 
more towards the principle.  fwiw, I was told this in the context 
of, "if you want to prepay the principle, do it in the first 
half -- doing it in the second half doesn't benefit you".

	The bank should be able to tell you the exact schedule,
though I have never asked for one.

-Austin

 That is true for a house payment.  Just look at a 30 year loan.  You are 
only paying $5 or $10 bucks a month for the first 5 years!

Car loans amortize exactly the same way that mortgages do!
However, mortgages are much longer than car loans, making the
principal portion of early payments a mere pittance. Extra
principal payments early on make a big difference for a mortgage,
but don't do much for a car loan.  Extra principal payments made 
late in the life of the loan don't gain from the "leverage".

If you need more detail, read on after the <FF>

Wes



For car loans, the term is so short that the principal is large 
fraction of the payment, even from the very start.  Principal is 
about 70% of the first payment of a 5 year, 7% loan.  A double 
extra principal payment might cut the loan by three months.

	$9.4K loan	interest	principal
	month 1		$78.33		$121.39
	month 60	$1.65		$198.07

Since mortgages have long terms, principal is a very small
fraction of early payments.  For a 30 year loan at 7%, the
fraction doesn't reach 50% until about 20 years into the loan,
and it's about 14% for the first payment.  An extra payment early
can cut as much as seven months off of the loan term.

	$30K loan	interest	principal
	month 1		$175.00		$24.59
	month 60	$164.93		$34.66
	month 360	$1.16		$198.43

The values above were chosen to get about a $200 payment at 
typical interest rates.

> For car loans, the term is so short that the principal is large 
> fraction of the payment, even from the very start.  Principal is 
> about 70% of the first payment of a 5 year, 7% loan.

	Where does one get a 7% APR for a car loan?

>                                          <<< Note 884.4 by NLA0::ONO "The Wrong Stuff" >>>
>
>Car loans amortize exactly the same way that mortgages do!

    In my experience, such a broad statement isn't true.

    Some car loans amortize like home mortgages.  Some don't.
    (Almond Joy's got nuts, Mounds don't!)

    Often car loans are set up so that all the interest is paid
    by the first few payments, before any principle is paid.
    I can't quite recall, but there is something like the rule
    of 69's which really screws the consumer.

>     Often car loans are set up so that all the interest is paid
>     by the first few payments, before any principle is paid.

	You may be showing your age :-)  I don't believe these types
	of loans are legal *anymore* ......

78's.

    re .6
    rule of 69's...
    
    We know where your mind is at.
    ;-)

��                       <<< Note 884.9 by PCBUOA::KRATZ >>>

��    re .6
��    rule of 69's...
��    
��    We know where your mind is at.
��    ;-)
    Really?!?!  Could you let me know?  I had thought it
    hopelessly lost...

    So, is the rule-of-78's still used for car loans?