Tuesday, April 11, 2006

highway robbery.

This guy has a 21% interest for his car loan?!

My coworker Brian showed me this. First thing I said was whoa.


If he does not have very bad credit, then this is highway robbery.

People, when you are looking for a specific loan, shop around and compare rates and fees. Or you will be robbed.

Anyway, this Q&A article is very good one. There are some loan companies that will secretly add "pre payment penalty" to the loan - if you try to pay the loan off early, you get penalized (paying more). Yes, like credit cards, loans can be evil, my friend.

And, paying a bit more toward your loan always helps alot because it reduces the interest paying in long term.

"In fact, to encourage you, let's take a look at what an additional $100 payment per month would look like: You would save $3,010.37 in interest payments and pay off your loan 17 months earlier. You should send two separate checks to your creditor and mark the extra $50 check as an additional principal payment so there is no confusion as to what you are paying. "

$3,010.37 is indeed alot to save if you only make an extra $100 monthly. Or even extra $50 instead, although the money you save will be lower but nevertheless significant.

And, please, don't get a 21% interest loan. I'm sure there's other ways to get a car loan even if you have incredulously bad credit. I think. Or do not get a car.

Though, getting out a loan on a car is not a good thing, though many Americans, including myself, are doing it. Most of the time, we have no choice but to take out a loan on the car. Why is this a bad thing? All cars are depreciating assets. You are paying interest for something that depreciates in value. That is a total waste of money.

Getting out a loan on a house is fine, because often, the house will increase in value, which the car will not. And you sell the house, and you get all of the money back, plus profit, to offset the loss you were paying in interest (if your house is doing well, that is).

You cannot sell the car and get the money back to cover up for the loss in interest payments. That is why some of people do not consider cars as assets, because they are always losing their values. I don't consider my car as an asset but there is nothing wrong with considering your car as part of your assets.

The best way to buy a car, of course, is to pay full in front. Some people I know are saving so they can buy their cars in full without a loan. That is a smart thing to do, because that way you do not pay extra toward a depreciating asset. I hope I can do that for my next car.


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