Often, loans are set up to maximize the amount of interest paid.
The Optimal Payment DebtCalculator is meant for those of us who have a car loan, credit card debt, a student loan, or a house mortgage debt to pay off, and who want to minimize the amount of interest they have to pay. The purpose of the calculator is to determine which different payment amounts will allow you to reduce your interest charges as much as possible by changing the amount of the monthly payment or adding payments to the principal.
The initial, lender presented calculation allows you to see how long it will take you to repay the debt; how much interest you will pay, and the actual percentage rate of interest you will pay on the debt.
From this, you can adjust your monthly payment to achieve an optimal result. - For example, if you wish to pay no more than $300 dollars interest on a 6000 dollar loan (5%), you can plug in the figures and calculate the amount you need to pay every month, until you reach a 5% result. ($457 for 14 months, given a loan rate of 8%)
You can also put in different payment amounts, until you find a payment that yields an interest rate that seems reasonable to you. -
From this, you can see how much money that can be saved if you pay down the balance immediately with, say an additional payment of $3000 (be sure to state it is to be paid on the principal)...on a $13,500 loan at 10.9%, - in this case you would save $2146, and pay the debt off 20 months earlier. In other words, you would get a 72% return on your $3000.
Using the debt calculator, you can determine that if you double the payment you are making, and direct that ½ of the payment goes directly to the principal, that you can save thousands of dollars, substantially lowering your actual interest rate.