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      07-03-2010, 11:54 AM   #1
cbs21
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Car financing for newbies

Hello, I need help with financing.

So I'm a young guy and I just purchased my first car and there's this thing called interest where the bank basically steals my money. Who the F invented this concept, seriously. As a first time interest payer, this is a tough concept to swallow. Next time, I'm paying in full with cash, hopefully. Anyway, I had some questions about the best way to go about paying as little interest as possible.

First of all, can someone explain what principal and interest here are in terms of the statement below it.


I'm making more than I need to make payments. And say, I will pay off the car 1 year early with options a and b below, which one is the best way?

a) just put everything I get into paying the car as soon as i get paychecks and stuff (and keep ~$1000 for savings)? Would that lower each monthly payment (principal??) and thus reduce the interest each month?

or does it not matter

b) just save money in a CD or money market account for about 2-3 years and then hopefully get some interest on that (probably a pathetic amount) and just pay off the car all at once a year early?

I have 6% interest and about 27000 left, only two months in.
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      07-03-2010, 12:32 PM   #2
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ur kidding right?
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      07-03-2010, 12:38 PM   #3
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ur kidding right?
you're so funny. why would i go through the time to post if i was
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      07-03-2010, 12:54 PM   #4
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WOW
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      07-03-2010, 12:55 PM   #5
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You financed a car without knowing about interest, researched it and came to the conclusion that it's banks stealing your money? Troll?
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      07-03-2010, 12:57 PM   #6
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You financed a car without knowing about interest, researched it and came to the conclusion that it's banks stealing your money? Troll?
HAHA
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      07-03-2010, 01:16 PM   #7
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So is this supposed to be a funny concept to troll?
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      07-03-2010, 01:29 PM   #8
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I find your lack of win disturbing.
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      07-03-2010, 01:47 PM   #9
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and you wonder how the population in America got in over their heads in debt and are losing their homes...

Props to the salesman that got you to sign on the dotted line without knowing what interest is...he deserves a raise!
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      07-03-2010, 01:48 PM   #10
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The bank lends you money because as a business they like to make money, this is the concept of loans and interest.

Your payment is split into two payments. The first smaller payment goes towards the principal (loan amount) the second very high amount is the interest payment.

If you pay extra every month the extra amount is applied towards the principle, which in turn lowers the amount owed and therefore the interest owed. Use an amortization table to see how this reduces the number of payments.

Also note there are loans which penalize you for paying off the loan early (the bank still wants to make the value of the interest owed.)
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      07-03-2010, 01:51 PM   #11
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Quote:
Originally Posted by T-MC-G View Post
Props to the salesman that got you to sign on the dotted line without knowing what interest is...he deserves a raise!
The truth in lending act (1968) requires the lending institution to disclose all interests, fee's and associated costs prior to the loan being furnished.

If you used your bank they would have sat down and talked through this with you.

If you used a used car dealer who did not disclose this information then they deserve a huge fine not a raise since they have broken the law and opened up their company to potentially severe repercussions.
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      07-03-2010, 02:19 PM   #12
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Quote:
Originally Posted by ABQ325i View Post
The truth in lending act (1968) requires the lending institution to disclose all interests, fee's and associated costs prior to the loan being furnished.

If you used your bank they would have sat down and talked through this with you.

If you used a used car dealer who did not disclose this information then they deserve a huge fine not a raise since they have broken the law and opened up their company to potentially severe repercussions.
i think you missed my point. i was joking on the fact that the salesman explained everything and all the fees and clearly the OP had no clue how it all worked but said he understood and the salesman got him to sign anyways and take out the loan. (assuming it was with BMW financing because for a 1st time loan i doubt a bank would do 6% on a used car)
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      07-03-2010, 02:57 PM   #13
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So is this supposed to be a funny concept to troll?
oh yeah i'm trying to be a funny troll
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      07-03-2010, 02:57 PM   #14
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Quote:
Originally Posted by T-MC-G View Post
and you wonder how the population in America got in over their heads in debt and are losing their homes...

Props to the salesman that got you to sign on the dotted line without knowing what interest is...he deserves a raise!
true, but i'm making enough money for everything just too cheap to pay interest
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      07-03-2010, 03:00 PM   #15
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Quote:
Originally Posted by ABQ325i View Post
The bank lends you money because as a business they like to make money, this is the concept of loans and interest.

Your payment is split into two payments. The first smaller payment goes towards the principal (loan amount) the second very high amount is the interest payment.

If you pay extra every month the extra amount is applied towards the principle, which in turn lowers the amount owed and therefore the interest owed. Use an amortization table to see how this reduces the number of payments.

Also note there are loans which penalize you for paying off the loan early (the bank still wants to make the value of the interest owed.)
a serious response, thanks, this is what i was looking for.
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      07-03-2010, 03:01 PM   #16
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Quote:
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You financed a car without knowing about interest, researched it and came to the conclusion that it's banks stealing your money? Troll?
maybe you didn't sense my sarcasm
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      07-03-2010, 03:01 PM   #17
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most 21year olds who graduated college with a science major and with parents who are reasonably well off tend not to know anything about this. i admit i'm one of them but at least im trying to learn.
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      07-03-2010, 03:44 PM   #18
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Quote:
Originally Posted by cbs21 View Post
most 21year olds who graduated college with a science major and with parents who are reasonably well off tend not to know anything about this. i admit i'm one of them but at least im trying to learn.
No, most people aren't stupid enough to ignorantly agree to a contract no matter their degrees or socio economic status. Search google, wikipedia, perhaps investopedia to learn about loans and interest. It's not a conspiracy, it's what makes lending a worthwhile endevour for the lending party.
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      07-03-2010, 03:47 PM   #19
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Quote:
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most 21year olds who graduated college with a science major and with parents who are reasonably well off tend not to know anything about this. i admit i'm one of them but at least im trying to learn.
STFU and get out... troll
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      07-04-2010, 10:13 AM   #20
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I'd start here.

http://en.wikipedia.org/wiki/Interest

and

http://en.wikipedia.org/wiki/Amortization_schedule

there are a few different ways to save on a simple interest loan (other than just paying it off completely). Most people just pay more payments earlier or put more money down. The faster you get that principle down the less your going to pay in interest. Look on your contract, the section that says "finance charge" is the amount of interest you are going to pay on your loan (in addition to the balance or initial finance amount), assuming every payment is made every 30 days for the term of the contract. If you pay late, or are assessed fees you will end up paying more. Although I think all banks are required to apply your payment toward the interest and principle before any fees.

Paying late, especially early on in the loan will hurt you significantly. In some cases your entire payment will apply toward interest and you will have not reduced your principle at all, In effect you gave away an entire payment.

An accountant friend of mine said he arranged his loan with a massive initial down payment, then didn't make any payments at all for a couple of years. (like 80% of it down on his first payment, you aren't always reported late if you've already overpaid) Then paid off the accumulated interest and principle with one payment at the end. He claimed this saved him a few grand on his finance charges. I can see how it worked but I wouldn't trust myself to remember to do this and just try to pre-pay my loans when I have the extra cash.

I've even argued with accountants for hours over a few dollars worth of interest. Sometimes knowing more makes people convinced they are right and unable to realize they also goofed a simple interest calculation.

Interest has been around for a very long time. Probably pre-dating the Bible itself (many churches passed laws against charging it because of it's trappings, others used it to profit and amass huge amounts of money). It's not really stealing, but as the saying goes "it takes money to make money". The bank is leveraging what it has against what you don't. In turn you get to use the item for 5 years, they make about 5-6 grand or whatever your finance charge is, etc. etc...

Don't be too hard on him guys. For some reason our educational system and many parents do little to nothing to prepare people financially. God knows mine didn't say anything other than "save your money". I think I took one accounting class where they covered simple interest loans in one 30 minute lesson in high school. This also why one can get an A in calculus 4 and not know how these somewhat basic financial concepts work in the "real world".

-BMW2006
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      07-04-2010, 12:44 PM   #21
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Quote:
Originally Posted by ABQ325i View Post
The bank lends you money because as a business they like to make money, this is the concept of loans and interest.

Your payment is split into two payments. The first smaller payment goes towards the principal (loan amount) the second very high amount is the interest payment.

If you pay extra every month the extra amount is applied towards the principle, which in turn lowers the amount owed and therefore the interest owed. Use an amortization table to see how this reduces the number of payments.

Also note there are loans which penalize you for paying off the loan early (the bank still wants to make the value of the interest owed.)
I'll assume the OP is for real. Before you start making larger payments, contact your lender. Sometimes you need to send additional principal payments to a different address, sometime you need to send an additional check marked "principal only" or they will apply the extra amount to prepaid interest and yo are not really helping yourself out.

That being said, expedite your payments as best you can, it is nice to have a paid off car.
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      07-04-2010, 12:54 PM   #22
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