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SE IL | Some simple math here: if you pay $100 6 months early and you had 8% interest you save $4 in interest. Your total payment will be the same, so $104 actually go to principle. When next years payment rolls around the principle you owe will be $4 less than if you hadn’t paid early the previous year, saving interest on that $4. No matter what you doing going forward that $4 never gets interest paid on it again. Year 2, pay $100 early, save another $4, now you have $8 saved….
Main thing is to make sure you bank will allow the principle reduction of payment to go towards you payment, some will, some won’t.
$4 compounded at 8% for 20 years is almost 19 dollars in savings, for just paying early the 1 year. Pay that 100 early every year and you save $216 over 20 years. Add some zeroes and it gets to be serious money.
Edited by Deere6 10/8/2024 06:45
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Farm Loan Payment Early
