If you plug in the numbers, you’ll see that even if the rate is the same, the LONGER the term, the MORE interest you’ll pay. So if you want to minimize the amount of interest, pick the shortest term you’re comfortable with.
@Snoopy916 wrote:
Yes i get that what i am saying is i could basically set my own payment by picking the longest term and, say pay whatever the shortest terms payments were (or more) on my own and it would be the same in the end-or even less since i can always pay even more, so its beneficial to pick the longest term possible in this case it seems
Well, yes and no. You can pay more than your payment due, but you are still paying interest on it. The only way to actually pay more and reduce the interest is to make a principal only payment. So while picking the longest term seems like a great idea, you're still going to pay a lot more interest than a shorter term (even with extra payments). That's why I suggest that you pick the shortest term you are comfortable with, that leaves you with some breathing room while still saving on interest. If you can afford the payments even on the shortest term, I don't suggest that you automatically go for the longest term, but rather something in between. Hope that makes sense.
@iv wrote:
@KLEXH25 wrote:
@Snoopy916 wrote:
Yes i get that what i am saying is i could basically set my own payment by picking the longest term and, say pay whatever the shortest terms payments were (or more) on my own and it would be the same in the end-or even less since i can always pay even more, so its beneficial to pick the longest term possible in this case it seemsWell, yes and no. You can pay more than your payment due, but you are still paying interest on it. The only way to actually pay more and reduce the interest is to make a principal only payment. So while picking the longest term seems like a great idea, you're still going to pay a lot more interest than a shorter term (even with extra payments). That's why I suggest that you pick the shortest term you are comfortable with, that leaves you with some breathing room while still saving on interest. If you can afford the payments even on the shortest term, I don't suggest that you automatically go for the longest term, but rather something in between. Hope that makes sense.
OP has exactly the right idea... although yes, you do need to make sure your extra payments are considered principal payments.
But if you (for instance) take out a 72-month loan, and every month you make both the "regular" payment and at the same time, a principal payment equal to the difference between the 72-month payment and the 36-month payment... You'll end up paying exactly the same amount of interest as the 36-month loan would have been. (Assuming, as in the OP's case, that the rate is the same for both loans.)
This does allow for both the choice of less total interest (by paying it off quicker), or more monthly flexiblity if needed (by paying the longer-term amount only).
You do need to make sure that there is no pre-payment penalty, and also make sure that you know how to mark the extra payment amount as a principal payment (vs an early payment for the following month), which some lenders can make tricky.
OP asked for the disadvantages, and I am listing them.
My lender (TFS) requires a mailed in check to a PO box for pricipal only payments. So if that's the case, and OP is willing to do that EVERY month, so be it.