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

878889 ###### 2007-12-05 21:57:54

I presume that the person asking the question is referring to a loan with so called "levelized payments". Most mortgages have levelized payments which means that during the duration of the loan each month and each year you pay the same amount to your lender. Each payment to the lender consists of interest and principal payments. Via the principal payments you repay the lender the amount you borrowed. Interest is the compensation you pay for borrowing the money. This is the profit for the lender. Every time you borrow money you only pay interest on the amount that you owe the lender. When you first borrow money and have not paid back any principal, you have to pay interest over the entire amount you borrowed. After you have made several payments you have repaid part of what you have borrowed from the lender. The amount outstanding is lower than in the beginning. Hence the amount of interest you have to pay is less than in the beginning. Let's assume the principal is \$100. In the beginning, the interest is calculated on the entire principal that is outstanding i.e., \$100. When you pay \$20 as installment towards repayment of the loan, \$6 (say) goes towards interest component and the balance \$14 towards principal repayment. Hence the principal outstanding is now \$100- \$14 = \$86. The next installment is also \$20. The interest component is 6% of \$86= \$5.16 (as against \$6 for the previous installment). The principal component = \$14.84. The outstanding principal now is \$86 - \$14.84 = \$71.16 and so on. You can see that the interest component keeps decreasing while the principal component keeps increasing with time. The key is that the interest is calculated on the outstanding principal and hence varies with time.

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## Related Questions 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. 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). 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 An amortized loan is just a basic loan where the principal and interest are paid on a monthly basis. Usually, the majority of the interest is paid first, then the principal. 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. The interest rate is given in the question. It is 3.5%.The amount of interest paid on the loan depends on how much of the loan (if any) is paid back during the period of the loan. If there are no interim payments, the total interest at the end of 5 years is 2681.85 approx. 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. 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? The total value of a loan of 10500 at 3 per cent, which is paid back at the end of 5 years is10500*(1.03)5 = 12172.38So the interest on the loan is 12172.38 - 10500 = 1672.38The interest will be lower if the loan is paid back, bit by bit, over the 5-year period. The interest on the loan will then depend onhow often repayments are madewhether in constant amounts or nothow often the lender calculates the interest.The total value of a loan of 10500 at 3 per cent, which is paid back at the end of 5 years is 10500*(1.03)5 = 12172.38So the interest on the loan is 12172.38 - 10500 = 1672.38The interest will be lower if the loan is paid back, bit by bit, over the 5-year period. The interest on the loan will then depend onhow often repayments are madewhether in constant amounts or nothow often the lender calculates the interest.The total value of a loan of 10500 at 3 per cent, which is paid back at the end of 5 years is 10500*(1.03)5 = 12172.38So the interest on the loan is 12172.38 - 10500 = 1672.38The interest will be lower if the loan is paid back, bit by bit, over the 5-year period. The interest on the loan will then depend onhow often repayments are madewhether in constant amounts or nothow often the lender calculates the interest.The total value of a loan of 10500 at 3 per cent, which is paid back at the end of 5 years is 10500*(1.03)5 = 12172.38So the interest on the loan is 12172.38 - 10500 = 1672.38The interest will be lower if the loan is paid back, bit by bit, over the 5-year period. The interest on the loan will then depend onhow often repayments are madewhether in constant amounts or nothow often the lender calculates the interest. Mortgages are types of loans that are secured with real estate or personal property. Mortgages generally have lower interest rates and longer termsA loan is a relationship between a lender and a borrower. No.What happens is that the lender will take your payments and use them to pay off the interest you owe on the loan each month. Any amount left over is used to reduce the principal you owe on the loan.When the loan is paid off in full for whatever reason, the amount that needs to be paid is the principal remaining plus interest for the current month so far.If your car is totaled and paid off three years into the loan, the interest you've already paid was to borrow the money for three years. Since you did borrow the money for those three years, you don't get any of the interest back. Yes, but only if the loan was made with the understanding that interest was to be paid on it. A loan is a contract between two people and is enforced according to its terms. If the contract has no provision for payment of interest then you have no right to demand it or sue for it. Yes, an auto loan calculator calculates all the aspects of what you would pay when you take out an auto loan. It includes the interest and will give you a good idea of how much would be paid overall on the loan. 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. Loan acquired to buy an asset is a liability of business so interest incurred on that loan is also part of that loan and that's why it is also the liability of business. More often than not, a loan with no credit check will be what is referred to as a payday loan. A payday loan is an advance of money, or loan, on a future paycheck. It is considered to be a short term loan, because when the borrower receives the paycheck that the money was borrowed upon, the loan is to be paid back, with interest. Payday loans are unsecured, and carry a high interest rate.

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