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Thread: Better to take a loan then pay a loan off.

  1. #1 Better to take a loan then pay a loan off. 
    Forum Professor Zwolver's Avatar
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    I am a total zero in economics. All i know about it, is that when i work, i get credit. When i want something, i pay with that credit. And a certain percentage of this credit is supplied to my total credit once a year.

    But why is it an advantage, when i have a loan, to keep the loan, and even take another loan on this loan. Even while i have more then enough money to pay it off. And why is it that when i want to pay off at once, they charge me extra. Shouldn't that be the other way around, them charging me when i don't pay?

    I know it's a stupid question, but still. I don't understand and i need to know. Can i bring logic, or do i keep it at home, when i do my banking?


    Growing up, i marveled at star-trek's science, and ignored the perfect society. Now, i try to ignore their science, and marvel at the society.

    Imagine, being able to create matter out of thin air, and not coming up with using drones for boarding hostile ships. Or using drones to defend your own ship. Heck, using drones to block energy attacks, counterattack or for surveillance. Unless, of course, they are nano-machines in your blood, which is a billion times more complex..
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  3. #2  
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    It's advantages, in ways, to be in debt because... they like the idea of you being indebted to them, so they encourage it.


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  4. #3  
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    Quote Originally Posted by Zwolver View Post
    I am a total zero in economics. All i know about it, is that when i work, i get credit. When i want something, i pay with that credit. And a certain percentage of this credit is supplied to my total credit once a year.

    But why is it an advantage, when i have a loan, to keep the loan, and even take another loan on this loan. Even while i have more then enough money to pay it off. And why is it that when i want to pay off at once, they charge me extra. Shouldn't that be the other way around, them charging me when i don't pay?

    I know it's a stupid question, but still. I don't understand and i need to know. Can i bring logic, or do i keep it at home, when i do my banking?

    It is the interest. Paying on the principal reduces the amount of money in interest due and then collected. Agreeing to pay a loan over x amount of time, and then paying as agreed, guarantees a specific return/profit on the loan due to the interest payments.

    Every loan payment, on schedule, also includes an interest payment. That means that x amount of ones payment money goes to reduce the principal and x amount of the payment money is an interest payment. If and when people pay down or pay off the principal, the interest payment, of course, goes down with the principal.

    The principal loan balance is what determines the interest amount/payment due.
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  5. #4  
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    Quote Originally Posted by gonzales56 View Post
    Quote Originally Posted by Zwolver View Post
    I am a total zero in economics. All i know about it, is that when i work, i get credit. When i want something, i pay with that credit. And a certain percentage of this credit is supplied to my total credit once a year.

    But why is it an advantage, when i have a loan, to keep the loan, and even take another loan on this loan. Even while i have more then enough money to pay it off. And why is it that when i want to pay off at once, they charge me extra. Shouldn't that be the other way around, them charging me when i don't pay?

    I know it's a stupid question, but still. I don't understand and i need to know. Can i bring logic, or do i keep it at home, when i do my banking?

    It is the interest. Paying on the principal reduces the amount of money in interest due and then collected. Agreeing to pay a loan over x amount of time, and then paying as agreed, guarantees a specific return/profit on the loan due to the interest payments.

    Every loan payment, on schedule, also includes an interest payment. That means that x amount of ones payment money goes to reduce the principal and x amount of the payment money is an interest payment. If and when people pay down or pay off the principal, the interest payment, of course, goes down with the principal.

    The principal loan balance is what determines the interest amount/payment due.
    I still don't understand when i'm constantly advised to take a loan, instead of first paying off my old loan. Is there some tax cut to people who have a certain amount of their capital invested in a bank, by taking a loan, and thus owing them money. So how do i get most out of the deal?
    Growing up, i marveled at star-trek's science, and ignored the perfect society. Now, i try to ignore their science, and marvel at the society.

    Imagine, being able to create matter out of thin air, and not coming up with using drones for boarding hostile ships. Or using drones to defend your own ship. Heck, using drones to block energy attacks, counterattack or for surveillance. Unless, of course, they are nano-machines in your blood, which is a billion times more complex..
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  6. #5  
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    Who's giving the advice? Lenders are just like any kind of salesperson. If you were at a car dealership, the car salesperson would advise you to buy a car also.
    Some clocks are only right twice a day, but they are still right when they are right.
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  7. #6  
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    There are many loans that can be advantageous to the customer, IMO. With the current economy, many auto dealers are offering very low interest loans and one needs to ask at the time of borrowing whether there is a penalty for early repayment.

    Sometimes, there is a cost built in to the anticipated repayment plan, which if paid off early, would fall short and there is a cost to accounting and servicing debt, although that should be getting considerably less with so much computer involvement in record keeping. There are many other loans, though, with no such penalties involved.

    The reason for maintaining a loan, even if one can pay cash, has to do with maintaining your credit record in part. The financial sector is largely quite conservative in their thinking and they like this tangible evidence of one's historic ability to repay.

    My current loan is on a 2011 Toyata Yaris, purchased new during a zero down, no interest over 7 years plan, with their 84 month extended warranty. I effectively walked in, signed and drove away, being an established customer with this dealership.

    I use my credit card for almost all other purchases because it offers a small cash back incentive and I pay the ENTIRE balance off monthly. THIS IS THE IMPORTANT PART.

    I absolutely despise paying interest and I have always paid off any interest bearing loan in advance and thereby saved myself considerable money over the years.
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  8. #7  
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    Quote Originally Posted by Zwolver View Post
    Quote Originally Posted by gonzales56 View Post
    Quote Originally Posted by Zwolver View Post
    I am a total zero in economics. All i know about it, is that when i work, i get credit. When i want something, i pay with that credit. And a certain percentage of this credit is supplied to my total credit once a year.

    But why is it an advantage, when i have a loan, to keep the loan, and even take another loan on this loan. Even while i have more then enough money to pay it off. And why is it that when i want to pay off at once, they charge me extra. Shouldn't that be the other way around, them charging me when i don't pay?

    I know it's a stupid question, but still. I don't understand and i need to know. Can i bring logic, or do i keep it at home, when i do my banking?

    It is the interest. Paying on the principal reduces the amount of money in interest due and then collected. Agreeing to pay a loan over x amount of time, and then paying as agreed, guarantees a specific return/profit on the loan due to the interest payments.

    Every loan payment, on schedule, also includes an interest payment. That means that x amount of ones payment money goes to reduce the principal and x amount of the payment money is an interest payment. If and when people pay down or pay off the principal, the interest payment, of course, goes down with the principal.

    The principal loan balance is what determines the interest amount/payment due.
    I still don't understand when i'm constantly advised to take a loan, instead of first paying off my old loan. Is there some tax cut to people who have a certain amount of their capital invested in a bank, by taking a loan, and thus owing them money. So how do i get most out of the deal?
    There are tax incentives but they do not outweigh the benefits (financially) of paying down your principal.

    You also have to understand that some people do not take on debt to buy up goods, services and products for personal use. Some folks acquire funds or valuables so they can create more wealth for themselves. These type of loans are often best kept as agreed upon because the ability to flip the cash over and over for profit is more valuable than using that money to reduce the principal on a loan... However, anytime something is being purchased or acquired for personal use, it is best to reduce the principal as soon as possible in order to save money or to get the most for yourself out of the deal.
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  9. #8  
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    And why is it that when i want to pay off at once, they charge me extra.
    Get better loan deals. Those without penalty clauses.
    "Courage is what it takes to stand up and speak; courage is also what it takes to sit down and listen." Winston Churchill
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  10. #9  
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    I'm talking about a student loan, in my country there is a system with student loans. And consumer services (those who look for the best deals) get economists to come over, and tell everyone to take a friggin loan, on top of your student loan, even if your able to buy the car, or kitchen yourself. Instead of first paying off the old student loan.

    I live in the Netherlands, and as far as ive researched, there is a constant tax a person has to pay on it's properties, per year, if it exceeds a certain amount. Plus a tax for everyone yearly to whatever a person has. This tax can be lowered if you have a loan, and i have no idea what is ideal... As the financial system in my country is a Ph.D on itself. I can't figure it out, and when doubt, i do what seems best, and that is finishing off old loans first, and saving for the house, (10% rule, where you can only take a loan or morgage, when you already have 10% surplus of that morgage from your own capital.)

    I also heard that trading stocks, escapes about 30% of the transition tax on where you would buy, or sell a house.. Not sure if this counts the same for options.
    Growing up, i marveled at star-trek's science, and ignored the perfect society. Now, i try to ignore their science, and marvel at the society.

    Imagine, being able to create matter out of thin air, and not coming up with using drones for boarding hostile ships. Or using drones to defend your own ship. Heck, using drones to block energy attacks, counterattack or for surveillance. Unless, of course, they are nano-machines in your blood, which is a billion times more complex..
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  11. #10  
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    Quote Originally Posted by Zwolver View Post
    I'm talking about a student loan, in my country there is a system with student loans. And consumer services (those who look for the best deals) get economists to come over, and tell everyone to take a friggin loan, on top of your student loan, even if your able to buy the car, or kitchen yourself. Instead of first paying off the old student loan.

    I live in the Netherlands, and as far as ive researched, there is a constant tax a person has to pay on it's properties, per year, if it exceeds a certain amount. Plus a tax for everyone yearly to whatever a person has. This tax can be lowered if you have a loan, and i have no idea what is ideal... As the financial system in my country is a Ph.D on itself. I can't figure it out, and when doubt, i do what seems best, and that is finishing off old loans first, and saving for the house, (10% rule, where you can only take a loan or morgage, when you already have 10% surplus of that morgage from your own capital.)

    I also heard that trading stocks, escapes about 30% of the transition tax on where you would buy, or sell a house.. Not sure if this counts the same for options.
    Well the choice is yours and I cant tell you what to due, I only know what I would do and that is pay off the principal loan as swiftly as a could and try to stay away from bad debt.
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