Podcast

Financing a car can be tricky. There are different ways to make payments, some more helpful than others. One option is an installment loan, where you make regular payments over a period of time. However, you have to pay interest, which can significantly increase the cost. For example, if you borrow $20,000 for a used car, you can choose between a three-year loan at 7% or a five-year loan at 9%. The smarter choice would be the five-year loan, as it has lower interest and saves you $2,652 overall, even though the monthly payment is slightly higher. Financing a car. Today we're going to be talking about the do's and don'ts of financing a car. There are helpful ways to make payments and not so helpful ways to make payments. The first topic we're going to be talking about is an installment loan with my co-host, Keane Cooper. There are many types of loans that people don't use or know about. First, you can get a loan that you pay off with weekly or monthly payments or payment in some other time period. That's called an installment loan. An installment loan is when the consumer gets to use a product immediately. But of course you need to pay interest with that. Interest can add a substantial amount to the cost of a purchase. No matter what, you're going to spend a good amount of money you don't want to spend. Now, what the heck is that? Now, for example, suppose you decide to borrow $20,000 for a used car. You can select two loans, each requiring regularly monthly payments. The first loan is a three-year loan at 7%. Second is a five-year loan at 9%. When you're making a monthly payment for the first one of three years at 7%, you're going to be spending $618 with the interest of $2,248. The second loan for five years at 9%, you're going to be paying $416 a month with interest of $4,960 a month. Which one would you choose? Obviously, the smarter decision is loan B because it's $2,652 less in interest, while loan A is $203 more per month.