Front-end Installment Loans are Bad News

Posted By: The Cheapest Skate in Loans on 07/30/2007 at 19:08:44

We all need to take out loans. There is almost no way you can go through life without having to suck it up and sign on the dotted line. No one enjoys it, but if you do your research, you can make it slightly less painful. Notice, I said slightly less painful.

The title for this section is pretty straightforward: front-end installment loans are going to get you gouged. This type of loan causes pain for you because it forces you to pay interest every month on the ORIGINAL amount you borrowed. If you can find a place that will loan you the money through a simple interest loan, (and you can always find one if you take enough time to hunt for it) read the fine print, sign, and walk away knowing you just made a good deal. With this type of simple loan, your monthly payments are smaller and when you pay, a section of it goes to pay off the interest and then the rest goes to paying off the original amount. Seems simple enough, pretty standard. Now here's where it starts to benefit you. Although your monthly payment stays the same, the interest you owe is now calculated against the NEW principle, rather than the ORIGINAL principle. With a front-end, your interest accrues as if you haven't paid any of the principle. Basically, with the front-end, you're being punished for paying off your loan, since your lender has locked in the interest calculation based on the amount you initially borrowed. Doesn't seem fair, does it· I didn't think so.

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