Episode #125 of the Stack Overflow podcast is here. We talk Tilde Club and mechanical keyboards. Listen now
103

A "true" 0% loan is a losing proposition for the bank, that's true. However when you look at actual "0%" loans they usually have some catches: The interest actually accrues at some rate but is not due unless the borrower "defaults" (misses a payment). The bank makes money when people miss a payment, and they get to add on all of the accrued interest to ...


103

No, what it says is “In half a year, we’ll give whoever holds this bond $10,000 for which you pay us $9,750 now”. This is equivalent to an annual interest rate of about 5% (the example is showing a yield way more than currently available). Plus you can sell the bond to another person in the meantime.


88

First off, your commitment to paying down debt and apparent strong relationship with your brother is admirable. However, I think you are overcomplicating your situation and potentially endangering your relationship by attempting to combine debts in this way. You could consider a simple example where you have interest bearing at 5% and your brother has ...


83

When you pay off a loan early, you pay the remaining principal, and you save all of the remaining interest. So you do save on interest, but it's the interest you would have paid in the future, not the interest you have paid in the past. (Your remaining balance when you pay off the loan only includes the principal, not the projected interest.) Interest is a ...


71

In other words, math. All the other answers are great, but I thought I might add something concrete to clarify slightly. Consider a counterexample. Suppose I borrow $120000 at 1%/month interest (I know mortgages are usually priced with annual rates, but this will make the math simpler). Further suppose that I want to pay a fixed amount of principal each ...


61

You must consider the different levels of risk associated with each loan. When the bank loans you money, it does so based on a high degree of information about your financial situation (through your credit report + additional information gathered at the time of granting your request). It feels quite confident that you will repay them, and therefore ...


59

Interest is calculated daily. Doing the math: Between 6-17 and 7-25 are 38 days, 200.29 / 38 = 5.27 interest per day. Between 7-25 and 8-17 are 23 days. 120.02 / 23 = 5.22 interest per day. The minimal difference is because the principal has already gone down a little bit. So you should expect ~5.20 x number of days for the next interest number coming up; ...


57

They are not necessarily a scam, or even likely to be. There is a reason they didn't just borrow the money at 5% though and this is virtually certain to be because they are higher risk. There was a recent question along these lines which I unfortunately cannot find. A number of points were raised. The investment is higher risk Your bank may not be ...


55

By paying the $11,000 into the 2.54% loan you will save $23.30 in interest every month. By paying the $11,000 into the 3.625% loan you will save $33.20 in interest every month. If your objective is to get rid of one loan quicker so repayments can go to the other loan to pay off sooner, I would put the $11,000 into the 2.54% loan and pay that off as quick as ...


49

Many lenders in the US do permit additional payments to be made against the principal. Those will reduce how much you actually owe, which reduces the total interest you will owe over the duration of the loan as well as shortening its duration. It is not uncommon for people to take a 30 year mortgage so they have the option of paying slowly, but to make the ...


45

It doesn't necessarily have to be a scam. The most likely scenario is that the issuer of the 12% bonds is higher risk, so you have to take that into consideration in your calculations. If you borrow money from a bank at a 5% rate, lend it to someone else at a 12% rate, what happens if they default and don't pay you back? The same concept applies to credit ...


44

I think there's value in charging family members/friends interest if it will make them take the loan seriously. The problem is that if you're thinking about charging interest because the person seems to be borrowing from you too cavalierly, it may be too late to make them take it seriously. In the situation you describe, if you're concerned about the loans ...


37

It depends on your bank's terms (which may in turn be influenced by laws and regulations), but most banks calculate interest on a per-day basis, so if you leave the money in the account for more than a day, it will generate interest. However, it will most likely be so little that you could make more money doing any kind of paid work in the time it took you ...


37

Personally, I don't think that the interest from the car loan is worth the credit history you're building through it. There are other ways to build credit that don't require you to pay interest, like the credit card you mentioned (so long as you keep paying off the balance). So I'd go that route: ditch the auto loan and replace it with a line of consumer ...


34

First, calculating interest on your bank account daily makes the most sense because your balance in a bank account typically fluctuates throughout the month: that is, you make deposits, and you make withdrawals. If the bank calculated interest only at the end of the month, say, based on your balance at that point in time, then it might not be fair to either ...


33

It's not correct. You pay both principal and interest on amortized loans. What happens is that you pay the interest accumulated on that principal during the period. As the time passes - some of the principal is paid off, allowing you to leave more for the principal because the interest becomes less. Thus the longer in the term - the quicker the growth of the ...


32

See many past answers: you will usually save the most money by paying off the highest-intetest-rate loan first. (Remember to allow for tax effects, if any, when comparing real interest rates.) Some folks are more motivated to simplify their finances than to save money; in that case you might pay off the smallest loan first.


31

As you noticed, there are diminishing returns on the interest savings as you get closer to paying off the loan. Certainly, the quicker you pay off the loan, the more interest you save. However, the total interest under the normal 10 year terms is fixed at $9178, and you can't save more interest than that. Therefore, the rate of increase of the interest ...


31

Tell them you will not loan them any more money until their existing debts are paid off. This is closer to how the real world works and it won't come across as vengeful or like your changing your initial "contract". If they protest, lovingly tell them that your money is not their money, and that an interest free loan from their father is a privilege, not a ...


31

It is extra payments that you apply to the principal. Here is an example. Let's say that you have a mortgage with a monthly payment of $1000 per month (principal and interest), which you pay on the 1st of the month. Now, let's say that, in addition to your $1000 regular payment, you have an extra $1000 that you would like to pay to reduce your debt. So ...


26

Excellent answers so far, so I will just add one additional consideration: liquidity. Money invested in a mutual fund (exclusive of retirement accounts with early withdrawal penalties) has a relatively high liquidity. Whereas excess equity in your home from paying down early has very low liquidity. To put it simply: If you get in a desperate situation (...


26

If you think you can manage the risk and the spread is ultimately worth it to you, there's nothing stopping you. I know in the U.S., in CA specifically, you need to have $85,000 annual income or net worth over some threshold to be able to loan more than $2,500 via peer-to-peer loan investing. I've had an account at prosper since around 2010, it does pretty ...


25

I don't know what rates are available to you now, but yes, if you can refinance your car at a better rate with no hidden fees, you might save some money in interest. However, there are a couple of watchouts: Your original loan was a 6 year loan, and you have 5 years remaining. If you refinance your car with a new 6 year loan, you will be paying on your ...


24

Most 0% interest loans have quite high interest rates that are deferred. If you are late on a payment you are hit with all the deferred interest. They're banking on a percentage of customers missing a payment. Also, this is popular in furniture/car sales because it's a way to get people to buy who otherwise wouldn't, they made money on the item sale, so the ...


24

You're contemplating paying 30,000 lira ($5000 US or 4400 EUR) today for bonds with a face value of 37,500 lira. If Turkey doesn't go bankrupt, in one year the bonds will pay out 37,500 lira. If you had 37,500 lira today, that would be worth $6175 US or 5500 EUR. But you won't have 37,500 lira at today's exchange rate, you'll have it at next year's ...


23

You owe them for the interest that has accrued since the last payment was credited to your account. When you sell a house with a mortgage the settlement company actually gets the payoff amount for a few days after settlement, to account for the mailing of the check after settlement has occurred. If they get it there a day earlier the extra amount is ...


22

Naturally the advice from JoeTaxpayer and dsimcha is correct, every situation is different. I will get reckless, go nuts and make a recommendation! You are young, childless for the time being. Do the following with your money: Eliminate all credit card debt or other unsecured debt. Max any matching retirement accounts at work. Fully fund a Roth IRA at $...


22

Because "my accountant said I'm in the 28% bracket and need more write-offs." When I hear someone say this I tell them to get a new accountant/advisor/tax guy. The benefit, if any, is the fact that if, and only if, (a hat tip to @staticx) you are already itemizing your deductions. It means that for me, my 3.5% mortgage is really costing me 2.625%. The ...


22

The simple answer is that you are correct. You should not purchase a house until you are financially stable enough to do so. A house is an asset that you must maintain, and it can be expensive to do so. Over the long term, you will generally save money by purchasing. However, in any given year you may spend much more money than a similar rental situation - ...


22

Which way would save the most money? Paying of the car today would save the most money. Would you borrow money at 20% to put it in a savings account? That's effectively what she is doing by not paying off the car. If it were me, I would pay off the car today, and add the car payment to my savings account each month. If the car payment is $400, that's $1,...


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