Learn From Our Mistake
My husband Bill always gets upset when I say, “I” or “me” and should be saying “we” or “us”. Like, “When I bought a rental property …” or “When I did a kitchen renovation …” It’s a terrible habit I have.
So I am finally going to include him. We made this mistake.
If you’ve ever shopped the papers for a new vehicle you will often see ads promoting Zero Percent Financing. Only $500 a month for 48 months. And then in really small type it will say OR $5,000 cash back.
If you can’t read that is says, “Or $5,000 cash back.”
IMPORTANT INFORMATION YOU NEED TO KNOW BEFORE YOU BUY YOUR NEXT VEHICLE.
If what you thought to be true, about zero percent financing was false, how soon would you want to know? Probably as soon as possible. And definitely before you bought your next vehicle.
Let’s look at a vehicle that is advertised for zero percent financing at $833.33 a month, zero percent financing for 48 months. (or $6,000 cash back)
The price of the car is 48 x $833.33 or $40,000.
Do we think the auto manufactures give away money for free? No. We live in a capitalistic society. We expect that they make money. It’s okay to have a profit.
The most profitable division of any auto maker is their financing division. It’s not the auto maker. It’s the financing division. GM Financing. Ford Financing. And this is one of the reasons why.
When we purchased our last vehicle, we didn’t even ask what the rebate would be if we didn’t finance the vehicle. We were so excited about the zero percent financing.
So what exactly is that financing profit?
If they are offering an option to buy it out right with $6,000 cash back … the real price of the car is actually $34,000.
So what is the real interest rate you are paying? It’s 8.92%!
Is there a better way to finance this car? Could we get a car loan for 6%? If we were able to get an auto financing deal for 6% our payment would drop from $833.33 a month to $794.52 a month. $38.81 a month savings. In fact, any financing deal below 8.92% would be in your best interests.
What if you were able use a cheaper line of credit rate of say 3.2%. Payment is even lower. $753.57. A savings of $79.76 a month.
We have been “trained” by the financial institutions and car dealerships to believe that zero percent financing is best. When in reality, zero percent financing was really 8.92% financing. We were hoodwinked. :;)
BEFORE ACCEPTING ANY FINANCING DEAL, ASK WHAT THE PRICE IS IF YOU DON’T FINANCE IT. FIGURE OUT THE IMBEDDED INTEREST AND SEE IF YOU CAN DO BETTER.
(this goes for cars, boats, appliances, etc. too)