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Amortization Tables

MattH
Senior Contributor

Amortization Tables

From various discussions on this board, it seems clear to me that many people could benefit from a careful study of loan amortization, that is how the balance declines with time. A key concept is that if the payments are equal then earlier payments mostly go to interest and later payments mostly go to principal, which is why one should always choose the shortest possible term given budget constraints. Here are some resources to get started, a few hours playing with these before going to the car dealer should be very educational. Remember also that depreciation works exactly the opposite way, a new car loses more value in its first year than in any later year. The combination of these two phenomena means that while one is paying mostly interest early on so the principal is not dropping much, the car's value is plummeting and therefore new car buyers tend to be upside down unless they put at least 25% down.

http://www.bankrate.com/brm/auto-loan-calculator.asp

http://en.wikipedia.org/wiki/Amortizing_loan

http://en.wikipedia.org/wiki/Amortization_schedule

http://demonstrations.wolfram.com/AmortizedLoanInterestAndPrincipal/
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