How to Save an Extra 4% Off Your Next Car Purchase
June 24th, 2009 |
Without having to find any great deals, or know any secret negotiating tactics, I have a sure fire way to save some money off of your next car purchase. Finance it for four years instead of five years (or, God forbid, six.) Most people finance their cars over 5 years to reduce their payments and purchase a nicer car for the same monthly payment, but it is much smarter to buy a slightly less expensive car and finance it over four years.
Here is an easy example of savings: say you finance $20,000.00 over 4 years at 9% interest. You end up paying $23,889.60 for the car. If you finance it for 5 years, you pay $24,910.20, that's over $1000.00 (4%) more that you are paying the bank to let you make payments on the car for another year.
And when you finance a car for 5 years, chances are your car will depreciate faster than you are paying it off for the first few years. This means that you will have negative equity in the car and it will be hard for you to be able to trade up to a newer car later. Negative car equity is bad debt, it is debt you have that is not secured against an asset worth the same or more than what is borrowed. Many car dealers even help you to compound this bad debt by giving you a loan for a new car and tacking on your negative equity. This means you will continue in a cycle of owing bad debt on your cars until you pay one completely off (or nearly so.)
Avoid this, and pay much less for your cars by getting the shortest loan possible. In the long run, you will be glad you did.
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