Quote:
Originally Posted by T-310
So the payment that goes strictly towards the principle is stupid???
I don't get it.
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Because the car companies expect you not to think about the total purchase price, as in what you will have ultimately paid after the loan is finished, which is exactly what you're doing.
Example - A car costs $25,500 with a 0% APR for 5 years which gives you a monthly payment of $425, or you can get $3,000 cash back if you bring your own financing/pay cash for the car, which gives you a monthly payment of $422.26. Piddly difference, yes. But the point being that you're still ultimately paying MORE for the car with a 0% loan, with "all of the money going strictly towards principle".
At the end of the loan, you've paid $25,500 with a 0% APR, or $25,335 while paying interest on that loan. Knock that loan down to 1.9%, and your total price is $24,652 - a savings of nearly a grand.
Spread those numbers out a bit more - a car with a price of of $30,000 w/0% vs $24,500 cash, and you get a $500/month with 0%, vs $440.23 w/3% loan. End of loan - over $3,500 SAVED while paying interest.
Yes, there are some 0%, or other low interest "deals" from the dealer or car companies that actually do work out in your favor, but that is rarely the case. This is why so many advisors will tell you to secure financing outside the dealers before going shopping - the cash price for vehicles far more often than not will work out in your favor, even when paying interest to the bank vs paying everything strictly towards principle.
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