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  1. How can I verify the minimum monthly payment number and how it breaks down into principle vs. interest if all I know is the current balance and interest rate?

  2. How can I determine the payoff date of that loan?

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1 Answer

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1 is pretty easy.

Interest for a month can be calculated by taking your whole interest rate dividing it by 12 and applying it to your balance.
Say your rate is 3.6%.
You divide that by 12 to get .3% interest paid per month. Then take that rate (.003) times your balance (lets say 10000) So your monthly interest is 30 dollars. If you have a 35 dollar monthly payment 30 is going to pay interest 5 is being applied to principle.

for 2 you can use amortization schedules or your can just go to this Existing Loan Calculator which makes it easy for you to compare what adding a few extra dollars to your payment will do to your pay off date.

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I guess what confuses me is why the rate is quoted as an annual thing instead of a monthly rate? Why wouldn't the rate be given to you in the form of .003 but instead .036 if we're just going to divide it by 12 anyway? What does the yearly rate tell/what use does it serve? Does it just imply that .036*current balance = interest we'd pay over a year? – AgainstASicilian Sep 7 '12 at 14:52
After calculating payoff date, does it make sense to say that the number of months until that payoff date * monthly payment = total amount to pay over lifetime? And then total amount to pay over lifetime - current balance = the amount of money the lender would gain as a result of interest (the amount of money I'd be saving by paying off now instead of later, etc?) – AgainstASicilian Sep 7 '12 at 14:57
@AgainstASicilian - Because this is the standard way of reporting the interest rate of a loan. This allows you to easily compare loan offers. There are actually regulations that require the loans be expressed in this manner designed to prevent consumers from being taken advantage of by banks offering interests rates that appear low because they are using non standard range calculations. – user4127 Sep 7 '12 at 14:57
@AgainstASicilian - That is correct. If you it off over the life of the loan you will spend that much more money. Than if you pay it off now. And Actually making extra payments early on in the loan is more beneficial (long term) than making them towards the end. – user4127 Sep 7 '12 at 15:00
Gotcha -- thanks! – AgainstASicilian Sep 7 '12 at 15:08

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