If you can afford it, why is it a great idea to pay MORE than your amortized payment on a car, home, or other loan? Select all that apply.

You will pay your loan off faster

You will pay less total interest

You will pay less total principal

You will pay less money overall

1 answer

The correct options for why it is a great idea to pay more than your amortized payment on a loan are:

  1. You will pay your loan off faster - By making extra payments, you reduce the principal balance more quickly, which shortens the repayment term.

  2. You will pay less total interest - Since interest is typically calculated on the remaining balance of the loan, paying down the principal faster reduces the total interest you will pay over the life of the loan.

  3. You will pay less money overall - By paying off the loan faster and paying less interest, the total amount of money you will spend in connection with the loan will be lower.

The option "You will pay less total principal" is not correct; paying more does not reduce the total principal amount owed, but it will reduce the principal more quickly over time.