Teach me about interest rates and payments

None of the DFW Toyota dealers offer less than 2.9 on a Tacoma. PERIOD. They know the desire and we're a truck state. These vehicles will never lose their value, so they know buying new is a long term investment (generally speaking).

 

Yeah that makes sense. I got a loan from the bank beforehand for that reason.

 

First interest is paid in the rears, no pun intended,so the amount gos down with every payment each month. As earlier mentioned savings a little extra every month so as not to have a car payment is great. Not only that cars are for the most part a decreasing asset ,value for the most part goes down. That's why there is gap insurance, for when one gets stuck in a loan they can't afford because they owe more than its worth.

 

I feel like seeing an amortization schedule is the best way to understand how your payments are distributed towards principle over time (I attached the beginnings of one below, which I used the iOS app "Loan Calculator" to make). You'll see why taking any extra payment made and applying the extra towards principle is important: it ultimately affects what you owe over time. Many banks will take advantage of individuals who are naive by applying any extra money paid towards interest, which should be illegal IMO. If you make ANY extra payments, it's always always always better to contact the bank and have them apply the payment towards principle. Lettting the bank take your extra payments and apply them towards interest only benefits the bank, so that they can secure money they're projected to earn as a result of servicing the loan to you.

 

Gap insurance came out after the long term loans started to appear, along with shady used car dealers rolling old debt into the new loan that left the bank holding a over valued car and the guy that bought it with a pile of crap . Years ago before political talk radio there was a guy who talked finance his biggest rant on car ownership was if you couldn't pay for it in 3yrs you can't afford it.

 

72 months to pay a truck off is entirely too long. No one should be financing a vehicle for that long unless they have some other motive to do so, like building credit. If you need to finance3 for 72 months you can't afford the truck. Bottom line though, pay extra each month to get the principle down.

 

I could have paid cash, i dont have any other credit building bills in my name. Im gonna go by and have them put more towards the principal each month.

 

I COULD have written the dealer a check and paid cash for the 3 vehicles in my driveway. I chose to let the trade in be the down payment and finance the rest for 5 years. Two are paid off, the other will cost me $1200 in interest if I take the entire 5 years to pay it off, 3.5 years to go. The payment is about $275/month, but depending on each months expenses I pay at least $300 and some months closer to $400. It won't actually take much over 3 years and probably less than $1000 interest.

I have money invested that I could have pulled out and paid cash. BUT... I'm earning a LOT more than $1200/year in interest on that money. Let alone $1200 over 5 years.

Paying cash can be good, but there are often other factors to consider. You don't have a screaming deal on interest, but not bad either. IIRC someone calculated about $2400 in interest over 6 years. Some guys think that is awful, but depending on the circumstances maybe not so bad depending on what you were driving before. With mechanics charging $100+/hour for labor you could easily spend a lot more than $2400 in the next 6 years keeping an older vehicle running. I seriously doubt if you spend any money on repairs other than tires/brakes/ battery in the next 6 years.

That is 1950's talk. My 1st home cost $28,000, a lot less than a new car or truck today and was financed for 30 years. Interest rates were in double digits too. The standard length of a car payment used to be 36 months, but that was when a Cadillac cost $10K. Cars and trucks cost a lot more now, and last a lot longer. Today 60 months is pretty standard, but longer term are common, and not always bad.

 

First, it's spelled "principal". Hmmph.

And second, in the past when I've been able to prepay principal I used to write two checks the loans, one for the scheduled interest + principal payment, and a second check clearly marked "to be paid for principal only". I did that when after I got burned by the bank by writing one bigger check and finding that they applied the extra to the interest.

 

I purchased in July. They came to me with 3.9% and I said I thought that was too high. After re-checking my credit they came back with 1.9 through Bank of America.

 

Why would you pay cash when you can invest it and make 2-3 times what the interest will cost you over the 60 or 72 month term?

 

Check other banks or credit unions in your area. I got 1.9% over 6 years, which I plan on paying off in 3.

 

Classic

 

Haha good catch. I looked at how the app spelled it in the header of the column and just went with that. I guess that's what I get for not looking it up myself. It's good we have people like you, however.

 

If you know of any risk free returns at 3.7%, please IM me. I would love to park some funds in that investment right now.

 

I call bullshit on this. US Treasury's are running around 1.5 to 1.7 percent right now. The only way you got that is if you got a subsidized loan through a manufacturer or somebody bamboozled you on the loan terms. New car loans for great credit scores are running between 3 and 3.5% in my area right now.

 

How does he know I am talking about that guy in my High School that kept sending notes home to my parents.

 

Nope. I have perfect credit and a local credit union had a labor day weekend offer going on. This was last year though if that matters. I'm at work, otherwise I'd dig up the paper for you.

 

Nope, not BS. Like I said earlier, that is what I got as well, and my daughter got a new rav4 at about the same time at 1.9 also.

 

Got 2.74% from my dealer in Seattle on March 17 this year. They had to beat a slightly higher rate that I had documented from my CU and beat it by roughly .5 % (half a percentage). Like many who could afford to pay cash, I choose to keep my cash invested when it's earning substantially more than 2.74%. Periodically and when the market is up, I'll pull a little extra cash out of my Roth IRA (tax free) to make a principal-only payment.

I like to be debt-free, but sometimes it pays to take advantage of cheap financing.