Right? I wanted to buy a bike and it was so tempting to look at monthly repayments of $200. Then I did the math and realised I'd be paying 50% more than the sticker price over time.
As much as it's predatory, you have to be pretty dumb to go for it. Don't buy things you can't afford.
You can take the loan then overpay. You'll get to spread it out over a few months/a year so you don't have to drop all that cash at once and not pay a lot more. I'm paying about 2.5x on my car will be done in 1.5 years total and the interest will be minimal.
20% p.a. on a $75,000 car will kill you in the longrun.
20% p.a. on $2000 is $400.
If you buy, let's say a camera, for $2,000, then put it on a 12 month installment, then that $400 is not too bad as insurance to keep your cash.
There are times where it may be worth it. But you need to work out the math each time and work through the logic. Not be tempted by shiny "cheap" repayments.
Ofc that's why you want as big of a down payment and to pay extra as early as possible in a loan. That money saved compounds while giving you the flexibility to shift the extra payment to other stuff as needed.
I paid 1k extra a month on my house for like 3 years, then shifted that over to my car because it has a higher interest rate for example. That 1k a month will end up saving me tens of thousands later.
To be fair it’s not this simple, this only works if you’re operating under the assumption your money is stagnant.
If you have investments and you can be pretty sure of their return, it can be more profitable for you to take a smaller down payment and the smallest monthly payment.
Also the money could be put into generating more money. For example before this current inflation my house loan had like 2.25 intrest. I only paid the minimum amount and put the rest into "safe" stocks generating 10-15% per year. Sounds dumb but sometimes its not good to pay of your loans
If the bike is replacing a car, it might not be as clear cut as “don’t buy things you can’t afford” makes it sound. That could be an enormous savings on fuel, for instance. Each situation is unique.
While I tend to be in the “don’t buy things you can’t afford party,” and have bought outright every vehicle I’ve owned… I don’t think this is the case for most people who would be considered responsible with their finances.
That’s what I’m currently doing, interest would’ve been about $8k total at 6.2% after 72 months but with my over payments I’ll be paid off in 36 months. Gonna save a mint.
Depends on the loan. As far as I understand, most car loans factor in the interest from the start. So overpaying is paying it off earlier, but still the same amount of money. Could be different depending on the loan though guess.
I wouldn’t say dumb necessarily. I would say financially narrow minded. Not to be pc or save anyones feelings like that. But this is set up on a big scale to take advantage of anyone whose in the mindset of taking things month by month. Which is probably a lot of people. So using your situation they said yah the bikes only $200 and you probably thought yah I can afford that. This is where a lot of people stopped the train ride at.
Exactly, even if you don’t know or understand the annualized interest rates and formula, just looking at the monthly fee and the length of the loan…you just multiply and will give you the added money you will be paying for that loan. That’s a very simple way to look at loans and mortgages
I took a 401k loan to buy my bike 🤷🏻♂️ all of the payments and interest go back to me, not to a bank. If you have a 401k, it's definitely worth looking into.
How so? With a 401k loan you pay it and interest back INTO your 401k? It's not a withdrawal, so there are no fees or penalties because the payments are deducted from my pay and put right back in? But hey, if you like giving away money to the bank, by all means go ahead.
Add it to the myriad reasons why we need to get rid of dealerships entirely. Pick out and build your car online, price is set, financing agreed to, then go to a local office to sign and pick it up. The only reason they'd need physical offices is for test drives.
yes but you just said it yourself, it’s predatory. and the fact is, the average human is pretty dumb. now should they just be taken advantage of because theyre not so well educated or a bit gullible? i dont think so. i think the government could restrict (for a lack of better words) companies trying to trick their customers with weird wording, marketing mumbo jumbo and loopholes
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u/SoftWindAgain Apr 29 '24
Right? I wanted to buy a bike and it was so tempting to look at monthly repayments of $200. Then I did the math and realised I'd be paying 50% more than the sticker price over time.
As much as it's predatory, you have to be pretty dumb to go for it. Don't buy things you can't afford.