Car
Financing
O.K. Let's get something out of the way right up front about car
financing. It can be
very expensive for you and pretty darn lucrative for a car dealer.
I'll get into actually negotiating the financing rate you pay a bit
later.
For now let's get some basic automobile financing information
under your belt first.
It's important to understand and determine what is an actual cost
and what is not. If you purchase your car for cash (well if you do, you
probably aren't reading this) .... say for $15,000 then the cost of
financing the car is zero.... easy enough.
However if you borrow
that $15,000 from a lending institution, that lending institution
will not only want their money back over a specific period of time,
but they will also charge you interest on that time it takes you to
pay back the financed amount plus the interest charge. The principal
that they loan you (the $15,000) isn't the finance cost..... the
interest rate and the subsequent dollars that it equates to is.
Should you pay cash, take out a loan, or pay a percentage in cash
and borrow the rest?
From a pure financial perspective taking on
debt for a depreciating asset is never a good use of your hard
earned money, but most of us need a car and most of us can't afford
to lop down a wad of cash for one.
That said, obviously the more you
can put down to offset the cost of financing your car the better. It
used to be (way back when) you could deduct the interest you were
being charged on your auto loan from your taxes.
It's true! .....
but never more.
So as long as the after tax interest rate on your car
loan is higher than the after tax interest rate you can earn on your
money - - - paying cash for your car is still less expensive
than borrowing the money.
Determining the exact cost of your potential car loan takes a little
bit of gonk-u-lating. There are a couple of factors that you should
be aware of, or not forget about. For our purposes there are
basically three basic constants when determining the cost of
financing your car.
Now, I said they were basics.... so if you are an experienced car
buyer this is a given.... but then again if you are experienced you
would be gone by now.... so you guys and gals just beginning car
buying here are the basics of car financing costs:
-
The higher
the interest rate the higher your monthly payments will be. I
know your thinking... Duh!? .....
But, here's the deal.
Sooooo many people buy a car based on the
sales person getting you to agree to (really feel good about) a
monthly payment range.
First of all BIG mistake.
Second of all,
by the time you get into the F&I office for the signing of the
finance papers, the F&I dude or dude-ett, now knows that they
can push your financial envelop even further and bump your
interest rate a point or even two... OR MORE!
Yikes!
And still
be inside your 'monthly payment range' or just outside of it and
still close you out. There goes a long drive.... the ball park
isn't going hold this one! Homerun!!! Finance Department.
-
The higher
the amount borrowed, the higher the monthly payment, the higher
the finance cost of your car. Reread the previous bullet point.
-
The longer
the financing is stretched over time the lower your monthly
payment..... and the higher the cost of financing your car.
Next
Car Finance Loans
|
