response post for/ I am taking a small loan to buy a car because I feel that it has become more of a necessity now than a luxury. Since this is my family car, I will be buying a used car worth $18,000. The bank I approached is offering an interest rate of 12.8% pa and I want to pay off the loan within the next five years. This will take 60 months to complete to ensure adequate real income. The loan has been negotiated using the simple interest approach using the formula: interest = principal x rate x time. The total interest will be $18,000 x 0.128 x 5 = $11,520. Therefore, the total cost of the car is the principal borrowed, which will be paid back in full plus the associated interest of $11,520, that is, $29,520. The monthly payment is divided by (5 x 12) months, that is, $29,520/60. Therefore, the monthly payment is $492. In this scenario, I will be paying a total of $492 to my financing bank. The loan term is quite long and may outlast my lastborn son's early childhood. If I were to reduce the loan term by one year, I would have 4 years or 48 months to wind up the loan. The simple interest formula still applies. However, the interest rate will be $18,000 x 0.128 x 4, which is $9,216. This would reduce the effective cost of the car as per the loan details from $29,520 to $ 27,217. Further, the loan will be repaid in 48 months. Every month, therefore, I will be paying a total of 27,216/48. This returns a total of $567. Therefore, the new monthly pay is significantly highe