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Does Your Loan's Amortization Table Hold a Secret You Need to See? · Becoming Financially Confident

• 0:37
  You've been doing everything right.
• 0:39
  That payment you've been making goes out every month on time.
• 0:42
  But that balance, it's barely moving.
• 0:46
  But there's a reason for that, and it's not what you think.
• 0:49
  I'm going to tell you about one document, just one table that explains every dollar.
• 0:54
  And most borrowers never see it.
• 0:57
  But you're about to.
• 1:07
  Hello and welcome to Financially Confident Christian.
• 1:10
  I'm Ralph Estep Jr.
• 1:11
  Thank you so much for joining me today.
• 1:14
  And I've got a listener question today from a listener that's been paying faithfully on a loan for years, but can't figure out why the balance is barely moving.
• 1:23
  It's one of the most common points of confusion in personal finance, but it's not a character flaw.
• 1:29
  It's actually a math problem that most people never taught to understand.
• 1:34
  So today I'm going to break down what loan amortization actually works.
• 1:37
  I know it's a big word.
• 1:39
  We're going to talk about what it is, where to find the table, and more importantly, what to do once you see it.
• 1:46
  Well, let's get right to this question.
• 1:47
  This one comes from Reddit.
• 1:49
  We sometimes get our questions from Reddit.
• 1:52
  Person wrote this.
• 1:53
  I've been listening to your show for a while.
• 1:55
  I'm not sure whose show, but this is what they said.
• 1:57
  And I finally have to ask about something that's been bugging me.
• 2:00
  I have a car loan I've been paying on for almost five years.
• 2:04
  I never missed a payment.
• 2:05
  I calculated it once and I've paid roughly $14,000.
• 2:10
  But when I checked my balance the other day, it's only gone down about 3,000 from where I started.
• 2:16
  I feel like I'm doing something wrong or like the bank is taking advantage of me.
• 2:20
  My friends say this is just how loans work, but no way to explain why.
• 2:26
  Can you help me understand what's happening now?
• 2:29
  When I saw this question on Reddit, I thought to myself, something doesn't seem quite right here.
• 2:35
  But when I think about it, it's not that the loan is broken, but it's the way most people picture payments is wrong.
• 2:41
  The amortization schedule, a very practical situation today.
• 2:45
  An amortization table fixes this instantly.
• 2:48
  So let's start by defining what does amortization mean?
• 2:52
  That's a big accounting word.
• 2:53
  Amortization is the way you pay off loan overtime and no schedule installments for a fixed rate loan.
• 3:00
  That means the rate doesn't change.
• 3:02
  The payment amount stays the same every month, but what's inside shifts constantly at the beginning, most of those payments go to interest.
• 3:11
  As you get farther down the road, the payments go mostly to principal.
• 3:16
  So on a 60 month car loan, month one might be 60 or 70% going to interest.
• 3:22
  You might be saying, ralph, that doesn't make any sense.
• 3:24
  How does that work?
• 3:25
  Well, interest is calculated on the balance.
• 3:28
  So if you think about it, you go get that new car loan, let's just say it's a $30,000 car loan, that interest is going to be higher because there's a bigger balance.
• 3:37
  So early on the balance is high.
• 3:39
  So those first years of payments are going to go to mostly interest.
• 3:45
  But as that balance drops, the interest shrinks because there's less principal.
• 3:50
  So the last two years of a loan field faster, like you're paying it quicker because they are.
• 3:57
  Now, I don't think the bank is cheating you.
• 3:59
  The numbers here are a little bit wonky, but this is how every fixed rate loan is structured by contract.
• 4:05
  As I said, the balance moves slowly at first because the math is working against the big number, not because your payments aren't counting.
• 4:13
  But we got to get practical here.
• 4:15
  You need to find the table, you need to read it and decide what to do.
• 4:18
  Here's the thing.
• 4:19
  Every fixed rate loan is generally required to provide an amortization schedule.
• 4:24
  When you got this loan, they should have given you a list of here's how many payments, here's what it looks like.
• 4:30
  Go into your loan, go look at the loan details and click on something like payment schedule.
• 4:36
  If you can't find it, go call them and ask about it.
• 4:39
  Here's the best part.
• 4:40
  You can actually build one for free@bankrate.com we'll put a link in the show notes.
• 4:45
  All you need there is the loan amount, the rate and the term.
• 4:49
  So you build this table.
• 4:51
  Now, this is a podcast, this is a video podcast or an audio podcast.
• 4:55
  So I can't show you this on the screen, but you're going to have a couple things to look at.
• 4:59
  You're going to have the payment number that's going to be 1 through 60.
• 5:01
  In your particular example, you're going to see that payment amount and, and then you're going to see the interest and principal portion on each of those payments.
• 5:09
  And like I said, at the front, you're going to see so much go in the interest and less the principal.
• 5:14
  But you can compare one month to where you are now and see how that split has shifted.
• 5:19
  Calculate the total interest over the full life loan.
• 5:22
  And most people don't realize how much they're paying.
• 5:25
  But when you look at that, it makes sense.
• 5:28
  Now, this may be a time to make an extra payment.
• 5:30
  That's not for this discussion.
• 5:32
  But make sure if you do that, you talk to the lender and you understand they're making that against it.
• 5:37
  Make sure there's no prepayment penalty.
• 5:39
  And once you see this table, you're no longer going to question your deciding.
• 5:43
  But here's the thing I want to talk about, because the caveat to this was this seems a little strange.
• 5:47
  If you're saying you've paid $14,000 in payments and you've only made $3,000 in principal reduction, something tells me something is wrong here.
• 5:57
  I suspect it's probably your interest rate is sky high.
• 6:01
  So that's one of the things I would want you to confirm.
• 6:03
  But go talk to the lender, ask them simple questions like, is something wrong here?
• 6:07
  Because something does seem wrong here.
• 6:09
  But that's generally the way that loans work.
• 6:12
  But your numbers just don't make sense.
• 6:13
  Again, this is a Reddit question, but it was something I wanted to talk about today, but now I want to go a little deeper.
• 6:19
  You said you felt like you're doing something wrong.
• 6:22
  You're not doing anything wrong, but you feel that way.
• 6:26
  And we got to sit with that for a second because it matters.
• 6:29
  We live in a culture that treats financial confusion as a personal failure.
• 6:35
  Most people have no idea what I'm even talking about today.
• 6:37
  What is an amortization schedule?
• 6:39
  What does this mean?
• 6:41
  The assumption that we have right now is if you don't understand something, you should have figured it out by now.
• 6:46
  That's not fair.
• 6:47
  And it's also not true.
• 6:50
  Scripture doesn't promise us a financial education.
• 6:53
  It doesn't say, well, read this book of the Bible and you'll learn how to do math.
• 6:56
  Faith doesn't make us immune to confusion about money.
• 6:59
  Money is confusing.
• 7:02
  But what faith offers us is peace in the middle of that confusion.
• 7:07
  It offers us wisdom when we ask for it.
• 7:09
  It offers us courage to ask questions most people are afraid to ask.
• 7:14
  Proverbs, chapter 4, verse 7 says, Wisdom is the principal thing.
• 7:17
  Get wisdom and with all you're getting, get understanding.
• 7:21
  We'll talk about that in a second.
• 7:23
  But I love the fact that you're curious about this.
• 7:25
  You've asked that is wisdom being put into action.
• 7:30
  Most people just keep paying and just figure, well, it'll figure itself out.
• 7:33
  You've looked and you wanted to understand.
• 7:37
  That's not being stupid.
• 7:39
  That's stewardship, and it matters.
• 7:42
  To God.
• 7:42
  And it matters to your future.
• 7:45
  So don't feel like you failed your loan.
• 7:47
  You just hadn't been given the full picture yet and now you have it.
• 7:51
  Or maybe you're going to find it out.
• 7:52
  So here's today's win.
• 7:54
  Go find that amortization table before you go to bed tonight.
• 7:57
  Look on the lender's portal and the payment schedule.
• 7:59
  Give them a call or go create one@bankrate.com takes two minutes and then look at one versus another month and see if where you are makes sense.
• 8:09
  I'm not giving you homework, but make that document and see if you can figure it out.
• 8:13
  Because maybe you're going to see the problem.
• 8:15
  Which gets us again to Proverbs, chapter 4, verse 7.
• 8:18
  The beginning of wisdom is this.
• 8:20
  Get wisdom and whatever you get, get insight.
• 8:25
  Because the truth is you could have been kept paying without ever asking why.
• 8:29
  The balance moves slowly.
• 8:30
  This is what most people do.
• 8:32
  Most people in credit card debt don't realize all they're paying is interest.
• 8:36
  But you asked, you've looked, you wanted to understand.
• 8:40
  And that's what this verse is all about.
• 8:42
  Not passive knowledge, but the active pursuit of understanding.
• 8:47
  Because if you don't even realize that you've transferred from just being a borrower to a borrower knows what this table says, you've really equipped yourself with some great knowledge today.
• 8:56
  How about we pray together?
• 8:58
  Heavenly Father, thank you so much for this listener who refused to stay confused, who's been paying faithfully, and we want to encourage him that even when the numbers didn't seem to add up, who finally asked the question.
• 9:11
  So Lord, right now I ask that you would give them clarity as they look at their amortization table, maybe for the first time, and give them peace knowing that they haven't been cheated, Lord.
• 9:21
  And if they have, help them to get that resolved, reach out to that lender.
• 9:26
  Protect them from shame about what they didn't know before they knew it today, and help them use this knowledge not just to understand the past, Lord, but to make better decisions moving forward to build up that wisdom.
• 9:37
  Lord, I just want to say they've been faithful in using what they had.
• 9:41
  Now help them be wise in what they know and combine those two things together to really help them get ahead.
• 9:47
  And we ask this in Jesus name.
• 9:50
  Amen.
• 9:51
  Friend, you asked a brave question today.
• 9:54
  A lot of people just sit by and say, ah, messed this up and they never dig of it out, but you did.
• 9:59
  So go look at those loan payments.
• 10:00
  Look at that amortization schedule.
• 10:02
  Reach out to the lender because guess what, there could be an issue here.
• 10:06
  And once you see that full picture, decide whether you want to make some extra payments or what makes sense to you.
• 10:12
  Great question today.
• 10:13
  And if you've got a question for this show, I would love to hear it.
• 10:16
  You can Simply go to financiallyconfidentchristian.com/question We'll put a link in the show notes, but again, it's financiallyconfidentchristian.com/question Thank you so much for joining me today.
• 10:29
  I want to encourage you to stay financially savvy.
• 10:32
  May God bless you.
• 10:33
  And you have a great day.
• 10:43
  We ride.