# Best loan paydown option **URL:** \ **Category:** Factual Questions\ **Created:** [October 25, 2018, 6:10pm UTC](https://boards.straightdope.com/t/best-loan-paydown-option/823507 "2018-10-25T18:10:30Z")\ **Posts on this page:** 9\ **Page:** 1
**Author:** ![pudytat72](https://avatars.discourse-cdn.com/v4/letter/p/ce7236/32.png) [@pudytat72](https://boards.straightdope.com/u/pudytat72)\ **Post date:** [October 25, 2018, 6:10pm UTC](https://boards.straightdope.com/t/best-loan-paydown-option/823507/1 "2018-10-25T18:10:30Z")
2 loans both $12,000 both same interest rate= 5% monthly payment required on each loan = $93.00 making a payment of $300.00 each month Option #1: apply $150.00 to each loan Option #2: pay $93.00 on one loan, $207 to other loan monthly to same loans (pay one loan down faster) Option #3: ??? ---
**Author:** ![Beckdawrek](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/beckdawrek/32/3647_2.png) [@Beckdawrek](https://boards.straightdope.com/u/Beckdawrek)\ **Post date:** [October 25, 2018, 6:13pm UTC](https://boards.straightdope.com/t/best-loan-paydown-option/823507/2 "2018-10-25T18:13:31Z")
Option #3… file bankruptcy. Kidding. It seems a better idea to pay one faster, IMO. ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [October 25, 2018, 6:14pm UTC](https://boards.straightdope.com/t/best-loan-paydown-option/823507/3 "2018-10-25T18:14:28Z")
Option #2 is better, not because it’ll save you more money, but because at some point one loan will be completely paid off, which reduces the required payment to $93 per month. That’s useful extra flexibility if your financial circumstances change and you can’t or don’t want to make as large a payment each month. If you do continue to pay $300 a month until both are fully paid off, then it won’t matter either way. ---
**Author:** ![KMS94](https://avatars.discourse-cdn.com/v4/letter/k/ad7895/32.png) [@KMS94](https://boards.straightdope.com/u/KMS94)\ **Post date:** [October 25, 2018, 6:19pm UTC](https://boards.straightdope.com/t/best-loan-paydown-option/823507/4 "2018-10-25T18:19:20Z")
I would pay the minimum on one loan while putting the rest on the other. I personally wouldn’t be interested in figuring out exactly which method would save the most money. I look at it as one outstanding loan is better than two, especially if something happens in the future to lower your income. If one loan was smaller, I’d say concentrate on that one first, but in your scenario it doesn’t matter. ---
**Author:** ![md2000](https://avatars.discourse-cdn.com/v4/letter/m/73ab20/32.png) [@md2000](https://boards.straightdope.com/u/md2000)\ **Post date:** [October 25, 2018, 6:50pm UTC](https://boards.straightdope.com/t/best-loan-paydown-option/823507/5 "2018-10-25T18:50:11Z")
> [@iamthewalrus\_3](#): > > Option #2 is better, not because it’ll save you more money, but because at some point one loan will be completely paid off, which reduces the required payment to $93 per month. That’s useful extra flexibility if your financial circumstances change and you can’t or don’t want to make as large a payment each month. > > If you do continue to pay $300 a month until both are fully paid off, then it won’t matter either way. Owing 2 loans to 2 sources with the same interest rate is no different than owing one large sum of $24,000. You will pay full interest 5% on the total monthly balance outstanding no matter how you arrange the payments, barring any special (unmentioned) conditions. But Walrus has the best answer - pay off one ASAP just to reduce your monthly liability going forward. ---
**Author:** ![Buck\_Godot](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/buck_godot/32/6573_2.png) [@Buck\_Godot](https://boards.straightdope.com/u/Buck_Godot)\ **Post date:** [October 25, 2018, 6:54pm UTC](https://boards.straightdope.com/t/best-loan-paydown-option/823507/6 "2018-10-25T18:54:48Z")
One other possible difference between your two different scenarios would be how it affects our credit rating, but I don’t know enough about the algorithms that compute the ratings to determine which one would be better. ---
**Author:** ![pudytat72](https://avatars.discourse-cdn.com/v4/letter/p/ce7236/32.png) [@pudytat72](https://boards.straightdope.com/u/pudytat72)\ **Post date:** [October 25, 2018, 7:29pm UTC](https://boards.straightdope.com/t/best-loan-paydown-option/823507/7 "2018-10-25T19:29:38Z")
Thanks for the replies. I wanted to see if I was missing some part of this picture. Both loans are with the same company (2 school loans from different years). The loan company is using some algorithm (that I can’t quite figure out) to divide the money between the two loans. I mostly think they have figured out some way to maximize the money they make, where I am trying to minimize he money they make! ---
**Author:** ![pmwgreen](https://avatars.discourse-cdn.com/v4/letter/p/edb3f5/32.png) [@pmwgreen](https://boards.straightdope.com/u/pmwgreen)\ **Post date:** [October 25, 2018, 7:42pm UTC](https://boards.straightdope.com/t/best-loan-paydown-option/823507/8 "2018-10-25T19:42:18Z")
The company charges interest on the unpaid balance. If you want them to make less money, you’re going to have to send them more. Is there a penalty for doing that? If you are paid every two weeks there is a strategy you can use. Every month where you have three pay checks, send them an extra 150. It easier to manage and saves you some modicum of money in the long run. ---
**Author:** ![filmore](https://avatars.discourse-cdn.com/v4/letter/f/7993a0/32.png) [@filmore](https://boards.straightdope.com/u/filmore)\ **Post date:** [October 25, 2018, 7:47pm UTC](https://boards.straightdope.com/t/best-loan-paydown-option/823507/9 "2018-10-25T19:47:10Z")
> [@pudytat72](#): > > Thanks for the replies. I wanted to see if I was missing some part of this picture. Both loans are with the same company (2 school loans from different years). The loan company is using some algorithm (that I can’t quite figure out) to divide the money between the two loans. I mostly think they have figured out some way to maximize the money they make, where I am trying to minimize he money they make! This is just a guess, but one possibility is that the bank paid different prices for the money in the two loans. Depending on when you got the loan, the money they used for the loan might have different interest rates. Like, maybe one loan had a rate of 1% and the other 1.5%. So maybe they’re trying to pay back the loan which is costing them the most first. But like I said, this is just a guess on my part. I don’t even know if banks would do something like that.