Best loan structure

[Douglas Peterson]

If you could borrow 50k for 5 years at 8% simple interest with monthly payments or 50k and 9% compounded annual interest, with no payments until one lump sum at the end of 5 years, which option would you choose and why?

[Jon Holdman]

If I understand your question correctly, the first choices is a 5 year, $50K, fully amortized loan at 8%. Payments are $1,013.82 for a total payment of $60,829.18. The second choice accumulates 9% interest at the end of each year, but isn't paid until the end of the five years. That's a balloon payment of $76,931, or about $16K extra. Can you earn that $16K by not making the payments along the way?