I have 2 loans of various interest rates, balances, and minimum payments.
Assuming I have a certain amount of money to pay out each month, how can I minimize the total amount I pay over the lifetime of the loans?
Given:
Total Monthly payment: M
Interest Rate for each loan: R1, R2
Initial Principal for each Loan: P1, P2
Minimum Monthly Payment: Min1, Min2
Assumptions:
I must pay at least the minimum payment on each loan each month. For each month I need to make 2 payments, one for each loan.
I can pay more than the minimum amount.
Here are some fictional values to get started:
Loan 1:
P1 = $45,000
R1 = 4%
Min1 = $1,000/Month
Loan 2:
P2 = $20,000
R2 = 5.5%
Min2 = $250/Month
M = $3,000
In the scenario above I would need $1,250 to make the minimum payment on each of the loans. How should I use the remaining $1,750 each month to overpay some of the loans, so that I minimize the amount of money I pay over the lifetime of the loans? (Assume payments are made once per month.)
Ultimately, I want to know how should I distribute M over the 4 loans each month. Does anyone have a formula that can be used to approach this problem?
Assuming I have a certain amount of money to pay out each month, how can I minimize the total amount I pay over the lifetime of the loans?
Given:
Total Monthly payment: M
Interest Rate for each loan: R1, R2
Initial Principal for each Loan: P1, P2
Minimum Monthly Payment: Min1, Min2
Assumptions:
I must pay at least the minimum payment on each loan each month. For each month I need to make 2 payments, one for each loan.
I can pay more than the minimum amount.
Here are some fictional values to get started:
Loan 1:
P1 = $45,000
R1 = 4%
Min1 = $1,000/Month
Loan 2:
P2 = $20,000
R2 = 5.5%
Min2 = $250/Month
M = $3,000
In the scenario above I would need $1,250 to make the minimum payment on each of the loans. How should I use the remaining $1,750 each month to overpay some of the loans, so that I minimize the amount of money I pay over the lifetime of the loans? (Assume payments are made once per month.)
Ultimately, I want to know how should I distribute M over the 4 loans each month. Does anyone have a formula that can be used to approach this problem?