Originally Posted by anmcguire
A simple solution if you can afford it... Pay a little extra each month so the principle is payed down faster, thereby avoiding the interest. I could put together an amortization spreadsheet to determine how much extra per month you would have to pay to offset the point if you like. Here is an example with a $50,000 loan financed for 60 months.
Rate Total Paid Payment Total Interest
2.00% 52,583.40 876.39 2,583.40
3.00% 53,905.80 898.43 3,905.80
4.00% 55,249.80 920.83 5,249.80
5.00% 56,613.60 943.56 6,613.60
6.00% 57,998.40 966.64 7,998.40
7.00% 59,403.60 990.06 9,403.60
8.00% 60,829.20 1,013.82 10,829.20
9.00% 62,275.20 1,037.92 12,275.20
10.00% 63,741.00 1,062.35 13,741.00
So the difference is about $1400 or roughly $24/month. If you paid off the loan in 4 years instead of 5, you would not pay the $1400 extra. Again, this is assuming that paying an extra $200 dollars a month (in my scenario) is possible. Hope this helps, take care.
This analysis ignores the opportunity cost of capital - the outlets you have to invest the money you are using to prepay the loan. In other words, paying off the loan early to avoid interest does not solve the problem. If one had the liquidity to pay off the entire loan, one could avoid all of the interest, but that doesn't solve the problem.
Bottom line is that it's too bad they hadn't offered it sooner, but such is life.