Varying the length of a loan repayment

bigpappa

So I am hopefully going to apply for a loan and I just plumped for 5 years repayment and then I started playing around and then I was wondering.

If I extend the loan term to 6 years from 5 years will I be better off if I intend to pay the loan back in about year 3 or 4 as the penalty will only be 2 months rent?

[Deleted User]

No, as you'll have accumulated more interest over the term due your lower repayments.

bigpappa

Deleted_User said:

No, as you'll have accumulated more interest over the term due your lower repayments.

I may have not explained myself properly.

Say I have an option of 2 loans for the same amount but loan A is for 5 years and loan B is 6 years.

Say after 3.5 years I decide to pay the outstanding amounts off.

How could I work out whether loan A or B I have paid more interest after 3.5yrs?

[Deleted User]

Use a loan repayment calculator to show the varying balance at any point. There's lots available on the internet.

The longer the term, the higher the cost.

MinuteNoodles

The longer term for the same annual APR will always result in more interest being paid. That is because you're spreading the capital repayment of the loan over more months so every month repaying less off the outstanding balance. This means the interest charged is higher every month because the outstanding balance the interest is calculated on is higher.