LOANS - How do I work out best short-term loan?

[BristolFlyer]

Hi - I've been wondering what works out best financially when "Cash-Flow" is NOT a problem yet you want to take out a loan and intend to pay it off fairly quickly.

Example:  In GW3, I want to get my hands on $99,000,000 loan to buy 1x 772 on the UM

Bank says I can have the loan on 1,2,3,4,5 or 6 years payback.
If I opt for 1yr loan, they say: 0.4% IR + 5.45% Margin + $25,174 Fees p/w =  Weekly payments are $1,925,107 (which I can pay) = $103,364,918 total loan cost over 1 yr.

If I opt for 6yr loan, they say: 0.4% IR + 5.45% Margin + $25,174 Fees p/w =  Weekly payments are $375,302 (better for cashflow) = $125,349,114 total loan cost over 6 yrs.

How do I work out what is better to opt for overall if I intend to pay off the whole loan within say 6 months? I cannot see what my early repayment charges will be - or is there a way?

Dave (I'm an engineer not a financial wizz  )

[Tha_Ape]

Well, the sailor / architect / joiner would say the shorter one, as you'll always be closer to what the bank expected, so they'll charge you less.
If you really want to know, take 2 micro loans, same amount, 1 for 1 year and the other for 6. Then compare

[BristolFlyer]

Hmmm - good answer there Arthur - without actually having any exact answer.  You must be a Lawyer 
Dave

[BristolFlyer]

Hah - can't try this out - I tried to take out 2 similar loans and got this message:

Error: It looks like you have submitted this form already (you cannot do the same action twice).(6)

[schro]

In game, interest rates do not change based on term of the loan, so the 1 year repayment will always incur the least interest expense. Junk fees are a set percentage and flat.

If you intend to repay after 6 months and wish to minimize interest expense, the 1 year is still the way to go as your average balance will be the lowest, therefore accrue the least interest expense over its life.

[JumboShrimp]

The shortest term is always the best, if you intend to pay it off quicker than the full loan term.  The reason is that you don't really get killed on the interest (that's just economics, cost of money), you get killed on the bank fees.

Suppose you have the money to pay off your loan in a month.  Your total interest for 1 month will be approx. $300,000 + you pay full year of the fees, which is $1.3 million for 1 year loan.

If you take it as a 6 year loan, to pay off the loan in 1 month, you still would pay approx. $300,000 in interest + $7.8 million in bank fees.

[gazzz0x2z]

Long loans are useful only when your cash flow is not excellent, as it reduces the cash flow bleed. On most situations, the shorter, the better, as my estimates colleagues said. But if you're doing 2M$ per week, and a 1-year loan would cash-bleed you 1.5M$ per week, maybe it's wiser to go for the costliest(i.e. longer) option.....

[BristolFlyer]

Thank you everyone - most useful (especially about the "bank fees" being more important to consider).  I kind of thought this would be the case, and have played AWS for ages and always just assumed this without actually asking for any explanation.  So I am most grateful guys
Thanks
Dave

[Zobelle]

I do loans way often as opportunities come up to buy cheap aircraft. I always get hosed on bank fees but the cost is outweighed on the occasional profit.