Before You Get Ripped Off: Calculate Your Own Payments in 30 Seconds Or Less
George Boelcke FCI
August 11, 2007
OK, dumb question: How long has it been since you’ve last heard a car ad? If you own a radio or TV, you hear dozens of them a day! Now, the purpose of every car ad is simply to get you into the dealership, since you can’t sell a car on the radio or TV.
These days, that means advertise a payment, and never mind the details, or often the price. It drives me crazy, it’s totally misleading, but that’s the reality out there.
This ad promised a payment “from” $199 a month or a cash price of $20,000. OK, let’s stop for five seconds and think about this: $200 a month on a $20,000 car? Grade six math says 20,000 divided by 200 is 100 months. That’s over eight years just to pay the principal. Then add all that interest and taxes and it would have to be over 11 or 12 years of financing!
Well, there’s no such thing as 12-year financing and even if there were, it’d be financial suicide. So you have to know that this ad is based on a huge down-payment, a very long-term lease or some kind of kinky financing that won’t fit into a 30-second ad and that you’d want to avoid like the plague.
With that same Grade six math, here’s how to work out your own payments on whatever you’re thinking of borrowing for, in 30 seconds or less. You can round up the numbers to make it easy in your head, use a calculator, or just a piece of paper:
We have our $20,000 car example, and let’s use six percent interest. The payment is made up of two parts: The interest each month and paying back the principal.
The interest part is the $20,000 total x 6, which is $120,000, then move the decimal point back two spots, which makes it $1,200 interest in a year. Now divide that by 12 months in a year, which is $100 interest a month, and divide that by 2 again to get the average over the term, or $50. That’s your interest each month.
The $20,000 principal is divided by 60 – let’s us a five year finance term. You have to pay the total back in that time. So it’s simply dividing the total by the time you’re going to owe it for. In this case, that’s about $330 of the principal you have to pay back each month.
Now just add them together. The $330 principal and the $50 interest makes the payment $380 a month.
There: In 30 seconds you’ve roughly calculated your own payment. The actual payment, if you get a payment calculator, go to the dealer, or contact your bank is only $6 different.
So this payment is really $380 and they’re advertising “from” $200. Back to where we started: It’s kinky, misleading and obviously not a finance payment in the first place.
Driving through Nevada this past week, there’s also a new web site for used vehicles that can actually let you search based on monthly payments. Same thing: Based on what term, is it a lease, a balloon contract, or what? To me, it’s the most backwards and dangerous way to shop for a vehicle – so why hype this new site or advertise based on payments? It’s because more and more people will fall for it, which will make the dealers a bigger and bigger profit.
When you have the information and knowledge you cannot get ripped off or misled! It’s as simple as that. Whatever your credit challenges are, five minutes on the www.yourmoneybook.com web site or looking through the chapter of the It’s Your Money book will ALWAYS save you hundreds or thousands of dollars in interest, fees or costs.
After all, knowledge really is power and knowing is ALWAYS better than hoping.
These days, that means advertise a payment, and never mind the details, or often the price. It drives me crazy, it’s totally misleading, but that’s the reality out there.
This ad promised a payment “from” $199 a month or a cash price of $20,000. OK, let’s stop for five seconds and think about this: $200 a month on a $20,000 car? Grade six math says 20,000 divided by 200 is 100 months. That’s over eight years just to pay the principal. Then add all that interest and taxes and it would have to be over 11 or 12 years of financing!
Well, there’s no such thing as 12-year financing and even if there were, it’d be financial suicide. So you have to know that this ad is based on a huge down-payment, a very long-term lease or some kind of kinky financing that won’t fit into a 30-second ad and that you’d want to avoid like the plague.
With that same Grade six math, here’s how to work out your own payments on whatever you’re thinking of borrowing for, in 30 seconds or less. You can round up the numbers to make it easy in your head, use a calculator, or just a piece of paper:
We have our $20,000 car example, and let’s use six percent interest. The payment is made up of two parts: The interest each month and paying back the principal.
The interest part is the $20,000 total x 6, which is $120,000, then move the decimal point back two spots, which makes it $1,200 interest in a year. Now divide that by 12 months in a year, which is $100 interest a month, and divide that by 2 again to get the average over the term, or $50. That’s your interest each month.
The $20,000 principal is divided by 60 – let’s us a five year finance term. You have to pay the total back in that time. So it’s simply dividing the total by the time you’re going to owe it for. In this case, that’s about $330 of the principal you have to pay back each month.
Now just add them together. The $330 principal and the $50 interest makes the payment $380 a month.
There: In 30 seconds you’ve roughly calculated your own payment. The actual payment, if you get a payment calculator, go to the dealer, or contact your bank is only $6 different.
So this payment is really $380 and they’re advertising “from” $200. Back to where we started: It’s kinky, misleading and obviously not a finance payment in the first place.
Driving through Nevada this past week, there’s also a new web site for used vehicles that can actually let you search based on monthly payments. Same thing: Based on what term, is it a lease, a balloon contract, or what? To me, it’s the most backwards and dangerous way to shop for a vehicle – so why hype this new site or advertise based on payments? It’s because more and more people will fall for it, which will make the dealers a bigger and bigger profit.
When you have the information and knowledge you cannot get ripped off or misled! It’s as simple as that. Whatever your credit challenges are, five minutes on the www.yourmoneybook.com web site or looking through the chapter of the It’s Your Money book will ALWAYS save you hundreds or thousands of dollars in interest, fees or costs.
After all, knowledge really is power and knowing is ALWAYS better than hoping.
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