Keeping More Money In Your Pocket

Saving Money by Saving on Interest

Most all of us in our lifetime will have to borrow money to make some major purchase. Along with borrowing the money comes an interest charge that the bank or financial institution will charge for the money you borrowed over time. Depending on the interest rates and the period of the loan, the amount you borrowed could end up costing you a lot more than you would have liked to pay. On any major purchase, it is best to pay as much down in cash that you can and finance as little as possible. And, in order to save interest, pay the loan back as soon as you can.

The less you have to finance the better. In fact, in some cases you will pay a higher interest rate if you do not put much down. It all points back to risk. Financial institutions see that the large down payment is a good indicator that you will pay the rest of the loan plus it helps their cash flow as well.

The total interest that you pay is a function of time. The longer you have an outstanding loan, the more interest you will pay and ultimately the more the loan will cost you. By working to pay off the loan early, you save money.

Sometimes folks will make double payments on their outstanding loan to pay it off in half the time. Always remember that certain loans have a payoff value and an outstanding loan balance. These are two different values. The payoff value is what it takes to pay off the loan today whereas the outstanding loan balance is what merely the balance of the remaining payments over time with interest computed in. Also, keep in mind that with auto loans, most of your initial payments are paying the interest only. Paying this type of loan early definitely has an advantage because all of the interest is figured into the first two to three years of payments.