Paying back loans early

Started by auerbacs, March 17, 2010, 08:33:23 PM

auerbacs

Am I doing the math wrong or is it true that there's really no point in paying back a loan early. It seems that the fee you pay for paying it early is so large that it cancels out any saving in reduced interest for paying it back early. Am I right about that?

Auerbacs

Sigma

You shoulda been around when not only was there a sizeable fee but you also had to pay back all the interest you ever would've paid as well.  Then, not only was there no reason to pay it back early, you were punished for doing it.

But, no, you'd be wrong that the fee cancels out the interest you'd pay.  When interest rates are as low as they are right now (at least in the Euro Challenge game) then it becomes more of a question.  But there's no doubt at all that you save TONS if you do it when interest is higher.

For example in the EC game, where interest is at 6%, I took a $50M/3yr loan about 9 months ago.  If I let it run its course, I'll have paid $15M in interest alone.  But, if I were to pay it off right now, the fee is less than $2M.


auerbacs

Oh yeah, I did the math again and it does make sense to pay it off early. One bizarre thing is that when I pay back part of a loan, the amount remaining changes accordingly but neither the monthly fee nor the duration of the loan changes. I assume that I'm not just getting fleeced here...