A Quick Example

 Here is some information that demonstrates how easy it is to get confused about a car loan...

Let's say you have found the car of your dreams and you have negotiated a purchase price of $20,000. You have also been told that you can obtain a loan for the car at the current best interest rate of 6%.  Finally, you have budgeted to have a car payment of no more than $400 per month and you would like to have the loan for only 3 years.  So take a quick look at this table...


 Years to Finance 3 4 5 6
 Monthly Payment $ 608.44   $ 469.70
 $ 386.66
$ 331.46
 Total Payments **
$ 21,903.79
 $ 22,545.63$ 23,199.36
$ 23,864.96
 Total Interest Paid
 $ 1,903.79
$ 2,545.63
$ 3,199.36
$ 3,864.96
 Additional Interest $ 0 $ 641.82 $ 1,295.57 $ 1,961.17

** Although you negotiated a price of $20,000 for the car, because you are taking out a loan, the total of all the payments over the life of the loan is the "actual" price you pay for the car.


If you can only afford a maximum of $400 per month for a car payment, you can not purchase the car with a 3 year loan. But, this is where the dealer will "help you out" and tell you that he can get your payment down to $386.66.  You are thrilled because you came in cheaper for the monthly payment than your budget! There are only two problems:

        1 - You will have to make payments on the car for a total of 5 years (2                             more years than you planned) AND

         2 - You will pay almost $1,300 more for the car.

 So was it such a good deal?  That really depends on how spending the extra money and having those additional 2 years of car payments affects your individual financial situation.

 

These are the types of things you will learn from the book to help you make the best decision for YOUR individual circumstances.