Posted on November 14, 2010.
I Recently Took Out a Loan for $ 28,000, until deficiency are over 10 years.Payments Approximately $ 340 per month.I Have not made my first payment yet and wondering if I WAS made a payment of $ 20,000 If The lender Would Have to redo The amortization schedule and start charging interest is The New Balance of $ 8000 gold THEY CAN continues to support the Way The loan interest WAS Originally Written? Are There Any Laws regarding this?
There are no prepayment penalties is this loan.
Roslyn Heywood says...
If your loan is a "simple interest" loan (and it probably is), then you don't need a new amortization schedule. When you pay the $20,000 on your loan, just look at the existing amortization schedule and find the line where your remaining balance is $8,000. That's how your next payment will be applied. It's just as though you "skipped ahead" on the amortization schedule. You'll still only pay interest on the remaining $8,000 balance.
(I'm using round numbers in the following explanation)
In your specific example, paying $20,000 right away will make your remaining balance $8,000. Your next regular monthly payment of $340 will be almost the equivalent of payment number 95 on your loan, where $284 of your payment will be principle and $56 will be interest. If you continue to make regular monthly payments of $340, you will have about 25 payments until your loan is paid in full.
Now if for some reason your loan has a feature called "rule of 78's" that applies when you pay ahead, you will NOT gain the full benefit of paying ahead on the loan.
Posted on November 21, 2010
