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The interest is based on the amount owed, therefore as payments are made the balance drops as does the interest amount (not the rate). So the interest is higher at the begining, because more money is owed at the begining.

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โˆ™ 2005-04-26 22:14:42
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Q: Why is more interest charged at the beginning of a loan?
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Why is more interest paid at the beginning of a loan period than at the end of the loan period?

Charging interest is the method by which a lender profits from loaning money to a borrower. The lender will set the terms of any loan to their advantage. They obviously want to get paid first and get paid the most. The balance of a loan is typically higher at the beginning of a loan, and interest will be charged on the balance. So as a person makes payments on the loan typically he/she will be making a payment consisting of part interest and part principal. As the person pays down the loan the interest that is calculated at the compounding period will be less because the principal amount has been reduced. For example, a person has a $1000 payment, at the beginning of the loan the payment may be broken down as ($900 interest and $100 principal), on the last payment of the loan the payment of $1000 may look like ($950 principal and $50 interest).

How can you show that more interest is paid at the beginning of a loan period than at the end?

Interest is computed on the remaining balance monthly..If you have a credit card balance and pay exactly every 30 days, you will see that the interest charged is reduced by a small amount every month.

Why is more interest paid in the beginning of a loan than the end?

There is more princple left on the loan for the interest to be calculated off. If the bank will let you. As to make payments on the princle. This will lower the amount of interst that is calculated in the future.

What if the lender has charged more interest than loan allows what can you do?

Visit the lender and verify that this is actually happening. There is a difference between simple interest and compound interest based on the interest and the principle outstanding.

Why is more interest paid at the beginning of a loan period that at the end?

Because your balance is high at the begging of the loan so then the balance goes down as you pay money so it comes to be less

Why is more interest paid at the beginning of a loan period than that at the end?

more interest is paid at first to secure the loan. they want to get their part of the money back as quickly as possible. what happens to the value of a new car the instant you drive it off the lot? Financial institutions are in it to make money not lose

What is an example of an inexpensive loan and a medium price loan and a expensive loan?

An inexpensive loan is one with a 0.12 percent interest rate. A medium price loan would be about a 6.5 percent interest rate. Lastly, an expensive loan would be one with an interest rate of 15 percent or more.

What is the interest rate on an unsecured personal loan?

The interest rates on an unsecured personal loan vary greatly from loan to loan. If your loan is through a Credit Union, it can be as low as 1.9%, whereas if it is a high-risk loan secured through a private business, the interest rate could be as high as 30% or more.

Does an unsecured personal loan let you pay more interest?

An unsecured loan is risky for many reasons. You may pay more interest, or if it is with someone you know maybe no interest. Read the terms and conditions you agreed to.

What is inerest is charged only on the balance remaining in your account?

It depends whether you're talking about savings or loans. If you have money in a savings account, you ACCUMULATE interest (therefore, you make more money). If you took out a loan, you PAY BACK interest (therefore, pay more money than you originally lent). The actual amount of interest (as a percentage) that you will be charged depends on many factors. - What is the central bank's interest rate? - What is your specific bank's interest rate? (Based on that of the central bank) - What is your credit rating? (Lower credit score means higher interest) - How long will it be until you pay back the loan? (Longer time frame means higher interest) - Etc.

What is the advantage and disadvantage of Loan Capital?

it will produce more interest

What is the going interest rate for a VA Small Business Loan ?

The interest rate on a VA small business loan is set on the basis of the prime interest rate. For a loan of $25,000 or less 7 years or less Prime + 4.25%, and for $50,000 or more 7 years or more Prime + 2.75%

Where can I find information about student loan interest rates?

Student loan interest rates tend to vary depending on the type of loan. More information is provided by American Student Assistance, which can be found at

Is interest computed differently on revolving credit vs non revolving credit?

Yes. Interest accrual methods will depend heavily on the specific loan type. Different revolving accounts may be calculated differently, as will different fixed loan types. Most commonly, a non-revolving loan may be "simple interest" where interest is calculated daily based on the principle loan balance, or may be "amortized" where a set amount of interest is charged each month based on calculations made when the loan was granted. Lenders may also use a slightly different calculations due to the days-in-year their system charges interest on (365/360 etc). A revolving credit account interest rate may be compounded (commonly used for credit cards) where you pay interest in the total account balance daily (so you effectively pay interest daily on interest you accrued the day before), simple interest (interest charged daily on the principal loan balance), or one of several other more obscure interest calculation methods. There are some loan types, both fixed and variable that require payments less than the amount required to satisfy interest due. These "negative amortization" loans charge interest on unpaid principal and interest while adding the unpaid interest to the loan balance. These loans became notorious as a major factor in the mortgage and housing market collapse that became widespread in 2007.

If you pay more than the amount due every month do you still get charged the same amount of interest?

NO, you should actually pay LESS interest over the period of the loan. You will actually pay it off sooner. If you are paying more then you need to specify to the dealer that you would like all overpayments to go twards the princeple not the interest which by lowering the princeple will automaticly lower the interest.

How does your payment change between a 30 and 40 year mortgage?

A payment on a 40 year loan, if it is a fixed-rate loan, will be smaller, provided all other factors like loan balance and interest rate are the same. If you are talking about an adjustable rate loan, well, your payment will vary on your interest rate more than how long the loan term is. A 40 year loan will pay-down your loan slower, meaning at 10 years, you'll owe more on a 40 year loan than a 30 year loan. You may also pay more towards interest on a 40 year loan.

How much interest is added on to a mortgage loan?

There is no one way to determine how much interest will be added to a mortgage loan without knowing the specifics of the loan. The amount of interest could be as low as 2.7% or 5% or more. The bank, type of mortgage and credit history can all play a part in the interest rate.

Will you pay more interest on an unsecured personal loan than a secured one?

The amount of interest you pay depends on the institution that you borrow from. You will usually pay more on an unsecured personal loan than a secured one.

Where can a low rate interest loan program be found?

Low rate interest loan program can be found in your local loan programs buildings. It's also possible to contact some of these companies online to know more about it.

What are auto loan rates used for?

Auto loan rates show the person receiving the loan the amount of interest a receiver will pay for the loan. A high rate will mean that it will take longer to pay off due to more money needing to be paid for the interest.

What interest rate would you be charged if you have borrowed r100000?

The answer will depend onwho you borrowed it from (a loan shark could well charge more than several hundred times what a reputable lender would charge),how long the loan was for,what the loan was for,what the expected return on your loan was,your credit rating or how risky the lender considered you,what securities you could put up - in case you did default on the loan,what the inflation rate was - now and over the term of the loan,the "normal" loan size for the lender.

Why do interest payments decrease each month and the principal payment increases?

Mortgages are typically "front-loaded." That means the interest is paid more aggressively in the beginning of the life of the loan than the principal. As the loan matures, less of your payment is devoted to paying the interest on the loan and more is applied to your principal balance. It is important to mark extra payments as being toward the principal, otherwise your mortgage servicer may apply any extra payments as an additional monthly payment instead of reducing the principal.

Do people with bad credit pay more interest on a home loan?

Generally, people with bad credit must pay more interest on a home loan; however, there are programs existing allowing people with bad credit to reduce their interest rates on home loans.

How Paying Off Your Car Loan Early Can Benefit You?

Paying off a car loan early may be difficult, but it has financial benefits: Interest Savings- If you pay off your car loan early, you'll save money by having a shorter time for interest to be charged on the loan, plus a smaller balance while you're working on paying off your loan. Fewer Payments- Although it'll take some planning to be able to pay more towards the loan now, you'll soon not have to worry about making any payments at all once your loan is paid off.

After you've paid your car and the interest rate is left on the loan and you don't pay can they repo the car?

after paying the auto loan to cover the car and more. What's left is the interest rate the lender adds on at the end of a loan, if you become delinquent in paying on the interest added, can the care get repo'd?