The length of the term of the loan is directly proportional to the total amount of interest that you pay over time Essay
1.) The length of the term of the loan is directly proportional to the total amount of interest that you pay over time. Therefore, the longer the term of the loan, the more interest you would need to pay in total while you are paying for your loan.
When you decide to make a larger down payment of the loan, the principal remaining on your loan which creditors hold you accountable for will be less, therefore regardless of what rate the loan is at, you will be paying less interest than if you had paid a smaller down payment. For example, if you wanted to buy a $100,000 at 5% interest and gave a down payment of $40,000 cash up front, then your first interest payment would only amount to $60,000 x 0.05 = $3000. However if you only paid $30,000 down payment, then your first interest payment at the same rate would be $70,000 x 0.05 = $3500.2.) The future value of the loan using the first option where the dealer rate of 3.
9% is applied to the entire amount is $21,987.29 which means that you would in total be paying $1,987.29 in interest. On the other hand, the total value of the loan after the same 4 years using financing from the credit union is $21,350.88 which makes a difference of $636.
41 in favor of the credit union option. However, this is under the assumption that the buyer will maximize the entire term of the loan. If the buyer comes up with money to pay for the loan earlier than its term, the buyer might end up paying more through the credit union with rebate option that through the dealer. For example, if the buyer suddenly comes up with the money to pay for the entire loan by the end of the first maturity year, the buyer would only have to pay $798 in total interest at 3.9% with the dealer but as much as $1,108.15 at 5.
99% with the credit union with the $1,500 rebate. Hence, this makes the dealer rate more flexible than the credit union rate although at maximum term, it’s the credit union that is more economically efficient.3.) In buying a car, the terms of payment only come after a deal with regard to the total price of the car has been settled. Hence, immediately jumping into comparing the different terms of payment before entering any negotiations with regard to the price of the car deprives the buyer of the opportunity to take out some of the capital from the loan that he or she will be making. If the buyer is able to negotiate a better price for a car, then it may be better to select that car even though the terms on the same vehicle from a different dealer or financer are better.
Hence, the buyer should not immediately compare terms but first negotiate the best price for the vehicle that he or she intend to buy first. Once this issue has been settled, then the buyer can engage into comparing which terms at the prices given offer the best payment system for the buyer’s budget and convenience.
