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Interest/loan question

  1. Sep 16, 2007 #1
    Hi all

    Just wondering if someone could help me out this...

    I have two loans of differing amounts and interest rates.

    I have x amount of dollars that I want to pay on each loan to achieve the lowest possible interest payable.

    How can I work it out?
  2. jcsd
  3. Sep 17, 2007 #2


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    If there are no fees or minimum payments, put all the money toward the one with the higher interest until it's payed off, then pay off the next-highest rate, etc. In most practical cases with minimum payments, make the minimum payment to all but the one with the highest rate and then put all you can toward that one (beyond its minimum).
  4. Sep 17, 2007 #3
    And if there are n equal payments...

    The amount of interest paid over the life of the loan under ideal circumstances (e.g., no extra fees) is given by
    [tex]P\left( \frac{ni/12}{1-(1+i/12)^{-n}}-1\right) [/tex]

    P is the amount borrowed, n is the number of payments, and i is the annual interest rate as a decimal. So this formula can be used to compare amount of interest paid under two different P's and i's. This is assuming there is a payment every month. n would be 12t where t is the number of years.

    Also try googling for a loan calculator... Not sure if you just want the answer or how it was arrived at (although I haven't said where the formula I stated came from).
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