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When it comes to buying a new car, many people ONLY look at the monthly payment. They don’t always pay attention to the price of the car or how much that car may cost in total.
Here is an example:
You are looking to buy a new car and looking to finance $25,000.00. You tell the dealer you would really like your payment to be around $400.00 per month. You know you have good credit so getting approved won’t be a problem.
The dealer then comes back and says we can finance the car for $363.90 per month. Sounds great! Right?
The deal they presented to you would be for 84 months at an interest rate of 5.89%. The total cost after you’ve made all the payments is $30,567.60.
But… what if you ask about the term and figured you could pay just a little more per month. After all, you were thinking about paying $400 per month when you started. The same loan for 72 months at a rate of 4.99% is $402.51 per month. Yes, it’s almost $40.00 more per month, but the interest rate is almost an entire point less. After you make all the payments, the total cost would be $28,980.72 with a savings of $1,586.88. Just for paying an additional $38.61 per month you saved a year of payments and almost $1,600 in interest.
If you’re the type of person who stops everyday for coffee… buy two less cups of coffee per week and you’ll have your additional $38.61 per month for your payment. Just food for thought, I always recommend to anyone who asks, take the shortest term possible that you can live with. You probably won’t notice that ten dollars a week but in the end, you will have saved a nice chunk of change.
(This blog post is for educational purposes only)