
Financing a car.
Me: You are financing $12,000 on a car. You have optional terms of 4, 5, or 6 years. Four years = $350 per month payment. Six years = $300 payment.
Kid 1: Lower is better. It would give me more money left over from my paycheck.
Me: Calculate it.
Kid 1, whipping out her phone: $350 x 12 x 4 = $16,800. $300 x 12 x 6 = $21, 600. WHAT? So I will end up paying them 21K for a 12K car? WHAT? That’s robbery. How can they do this?
Gordon: That’s how they make money. So when we walk into the office today to discuss this purchase, they will push you toward lowest monthly payment. Now you know why.
Kid 1, outraged: Right.
Things we do not teach kids in school and we really should.
Ha! Yes. This is why my dad was awesome enough to fund half my car for me (which I repaid monthly, with no interest). Cause when you do the math…yeah, NO! But yay for Kid 1 getting a car!!
Even better let them get a low interest loan based on your collateral. That way you are not the last to be payed.
Assuming equal interest rates and no prepayment penalty, I’d take the lowest monthly payment abd longest term, but pay as much extra per month as I could. If that extra ends up being equal to the monthly repayment on the shorter term loan, it’s a wash…but without the committment needing to pay the higher amount. (This only works if the long term interest rate isn’t different from the short term and if you plan to overpay on the loan from the jump.)
Depends, a lot of car loans have penalties for early repayment
If you know you can repay the loan before the full term is complete (for instance, saving up for a lump sum payment after 3 years on a 7 year loan), then there may be an argument for taking the longer loan with the lower monthly payment.
Two words which the American education system has NEVER taught the meaning of (and really should): compound interest!
We do teach this in my school. We also teach kids about moneymart and payday loans and 24% interest rates and compound interest,. It’s part of a financial unit in a life skills class all students in our division have to take to graduate. They get super angry when they see the payday loans over time. Hopefully they remember later on! I don’t know why my own parents never taught me this stuff, really wish they had. Glad you guys are!
Agreed!!!
I am currently looking for a car too…ugh on financing….they really do get you
Or take out the six year contract but make payments on the four year plan. Most new contracts allow the extra principal payment.
Yes, but (not sure what it is called… let me pause to think) you STILL pay the interest… they add it at the beginning. Auto loans are “amortized.” In many cases the interest owed is front-loaded in the early payments.
Rule of 78/Interest first loans are structured so even if you try to pay off early the lender will still make a lot more profit. The loan doesn’t have a simple amortization interest schedule.
Yep. Always, always, always make sure it’s a simple interest loan with no pre-pay penalty. Most actual dealerships don’t pull that (but always double\triple check). It’s the smaller dealerships (and buy here pay here) that pull that.
I always arrange financing with a local bank then make the dealer beat it if they can. They generally do.
If the interest isn’t much, as Nancy stated, I’ll take the longer contract and pay at the shorter contract “rate”. That lets me pay it off with less interest, but if I have a tough couple of months I can pay the minimum then go back to the regular quick payoff without losing much $$ in interest.
I have done this with home loans as well. I take the 30 year loan and pay at the 15 year payment plan but if times are tough, can drop back to the 30 year payment without any penalties but still saving a TON in interest over paying at the 30 year rate.
Pretty sure you are thinking of a lease with the amortization. Car payments are calculated with interest on the remaining principal. I’ve always paid my car loans with a half payment every two weeks as it results in both less interest paid, and an extra full payment every year with minimal impact on budget since paychecks are usually every weeks also. I also round up the payment as the budget allows. If interest rates are the same, I usually go for the longer term and plan on paying it down early. That only works if you are good with budgeting though.
When I first started dating him 15 years ago, my husband was using student loan “extra money” to buy a new tv. Now he gets positively giddy creating spreadsheets with payments and interest rates, and factoring in accelerated payments, but man those first years… he really didn’t understand why I had things like Quicken, and why I itemized my receipts so I could tell where my money was going…
What a blessing you were to him, Elizabeth. I wasn’t quite that bad, but thank goodness my husband shared your approach to matters financial.
Absolutely agree. Also need to teach them about compound interest on credit cards. My daughter ran up a $1000 in debt on an Ulta credit card because she was paying the minimum which didn’t even cover the amount of interest she was charged every month.
Your daughter has the excuse of youth. I had a co-worker who was in her 50s who had no idea that the minimum didn’t even make a dent in what she owed – we had to walk her through it with charts and arrows.
Best lessons about credit cards were taught by my parents and sister.
The lesson from my parents was if you can afford to pay the entire amount do so. Cheaper in the long run.
My sister’s lesson was by observation on how it impacted her life; don’t use a credit card to pay off another credit card. She amassed 20,000 dollars of credit card debt, two home equity loans, and a mortgage from bank of mom by the time someone else took over her finances when she was injured.
I couldn’t agree more and am so thankful to my parents for teaching me a lot of practical skills, including economics, growing up.
A “real skills for real life” class (doing laundry, buying a car, leasing an apartment, shopping for groceries, managing credit cards, etc.) would help a lot of kids who my have never had to do these things before they “became adults” at 18 and were out living their own lives.
(‘Fessing up to my age, at one time I would have added balancing a checkbook to that list. ????)
There are classes like that – they’re called FACS (family and consumer science), but they’re not required courses and are often recommended against for college prep kids. I have a friend who teaches these courses and they cover job hunt skills (resume, interview, etc), kitchen skills, budgets, etc. Her kids do so well and she gets great feedback.
When I was in high school, our school district had FACS as a required 1 semester course junior year. Probably the most useful course in my high school career and the one I still use 40 years later.
Due to financial constraints, I actually asked the auto dealership if it’s possible to lower the monthly rates. Before walking in, I did the budget of current expenses plus estimated cost for a new monthly car and insurance. I was quoted a high amount which was way over my estimated max. I knew that I couldn’t afford the car with that monthly rate. I asked if they can lower it…. I was upset with myself afterwards when I was back home and saw the total price difference. But realistically, it fit my monthly budget . I always paid more when I had extra income. .. I just wish I had parents or a school course that could have helped us kids face the real world.
One of the benefits of having a banker for a father: when I was in 5th grade( I think. It’s always hard to remember exactly when things happen, but I was definitely around that age) my dad borrowed money from me and said that I could charge him compound interest if I could calculate it. After he explained the concept, I spent about half an hour calculating it out by hand (without a formula b/c I also had to figure out the math) and wrote up a contract charging him something ridiculous like 5% compounded daily and made him sign it. He returned that money within 2 days. Until I left for college, it became standard practice for me to make him sign a contract when he borrowed money. Yeah… we’re a weird family.
Nah, seems like a fun harmless way to teach your children basic finance skills 🙂
The best option is to have a plan that allows paying faster in larger installments. Take the 300$ for 6 years, pay 350$ every month, and ask to lower the payment every time. I do not know if this is allowed in the USA, but this is the best option. She will end up paying less money to the bank and if she gets in trouble financially later on she will need a smaller amount of money for the monthly payment.
You had to be careful with this and be on top of what you expect your balance to be. Use a spreadsheet to create an amortization chart that shows you. Super easy.
I had a car loan with, I think, Chase. The unscrupulous part worked like this: If you sent them $350 on a $300 payment, they would put that extra $50 as a credit for a future bill but NOT credit it immediately. If you wanted to make extra principle payments, you had to make a separate payment designated as principle-only.
It seems like this should be illegal. It was a big bank, which doesn’t make it any less likely that they did something illegal. That detail was somewhere in the fine print of the contract. It took me a couple of months to catch on, until I noticed my next bill due date was three or four months out instead of one month, and I ran the math on my expected balance in Excel.
That still hasn’t changed. It took me three tries over 6 months on-line with my Credit Union to get the two payments set. Whew when it finally worked!
I agree finance should be taught in school but we’ve always talked about money with our kids and found out the friends use us as an example for their kids. First rule is spend less than you make.
No one who lends you money at interest is your friend, regardless of how friendly they seem. Simple banking and accounting should be taught in high school to all students.
BAM! You hit that nail right on the head! Big smile, but not your friend at all!
They’re not your friend but they aren’t necessarily your enemy
Very few people could buy a house without a loan
When I bought my current car (a Getz) the payments were about what I’d paid for petrol on my previous car
It’s helpful that my dad is smart and my mom is an accountant. I’ve been more financially savvy than most my age. Of course, I still needed the support during negotiations because I have a hard time bargaining and dealing with all the other add-one.
Smart parents.
Is simple arithmetic concepts not taught in US schools?
This is not a criticism, only genuine curiosity
I would say yes it is taught but probably on the younger side. Plus unless it is reminded about the interest on the loan a lot of people don’t think long term. They just see the payment plan not the overall total.
The arithmetic, yes, but most schools completely divorce it from any practical application. The lack of financial literacy in this country is bordering on criminal.
Decades ago, this would be taught in “home economics “ class, along with cooking and basic sewing. Gone. One of my nieces taught home ec, the program has morphed into other directions, and she was told that when she retires in a year the school system where she works will be dropping the program entirely.
And don’t expect to learn how to balance a budget in math class either.
In Jr. high home economics (1972), we had a section on cooking, a section on sewing, and a section called “home living”. The third section was taught by a newly graduated, energetic young teacher who covered everything from budgets to house design and decor to social skills. Ex. – If you want to have a party, how much will it cost, from invitations to decorations to refreshments. Also, what will the entertainment be?
Guess which section we liked the best!
(There was also the occasional “circle up the desks” for Q & A on things we needed to ask an adult, but didn’t trust the school counselor for – because he was older than most of our parents….)
The concepts like addition, multiplication, algebra, etc, yes. We learn all of those.
Unless you’re extremely fortunate with your parents or their choice of school though (assuming they can afford to have a choice)… most places you’ll get zero hint that it might be helpful to use those concepts on major money decisions.
Or to apply critical thinking to your finances at all, sadly.
It truly depends where you go to school. I got budget and loans and interest rates in 8th grade math and investing in 12th grade government in the early 1990s. My kids got budgeting and jobs/wages in their mandatory computer class in 7th grade, “reality town” in 8th grade where they go over it again and actually “pay” their monthly expenses, and they’re first given interest equations in 8th grade math and hit it deeper in 11th grade math– this is in Utah currently. But so many people say they were never taught these things…I think they blew it off, personally, but since they went to school different places than we did I can’t prove it. ????
It is taught, but at the high school level, it is very specific to the subject. Majority of students are in an academy or collection of classes along with their Math, English, History, Science that may be Engineering, Culinary Arts, Health Science, Welding, Automotive, Arts, Audio Visual, Construction Science, Agriculture, Electronics, Robotics, Computer Science, and many others, and of course Business, Finance, and Marketing. They take anywhere from 4 – 12 classes in their focus throughout the 4 yrs of high school, many of the classes dual credit (both high school and college at the same time). They have projects within their academy that require them to plan, design, and do cost analysis of project. The issue seems to be that outside of the Business, Finance / Marketing classes, most students don’t make the connection between personal finance maths and the cost of their project. EX: Create an entire landscape design for a business, then factor cost of plants, machinery, hours, special labor (crane operator to put in those full size trees instead of the small ones, for example), lighting, irrigation system, time, and general labor costs ( I am leaving some things out, btw). Ok, now tell kid here are 2 budgets. What can you do for that business now? The other academies have very similar projects / scenarios for their students as well. They have the math, just not a lot of focus on the daily living and many kids can’t make the connection between those projects and their daily lives.
However, there are many elective classes that do teach those skills either as a small part of the year or even all year long (Money Matters, Math Models, Financial Math, College Math Prep & Transition, to name a few). Kids just have to be aware of them and sign up. They can even choose to take a finance class from the Finance / Business academy if it fits in their schedule. These are available all over the US, just depends on what the specific school district is offering.
Also in Canada a lot of so called “academic” kids only take one stream in math which is all algebra and trig, instead of the workplace math. But the workplace math is the practical one. I always recommend that kids take both.
Agree! I used to answer consumer assistance calls and the amount people don’t understand about balancing their checkbooks, borrowing, etc, is astounding. Basic finance and life skills should be a requirement in high school, if not earlier.
Junior achievement has a free program that can be taught in middle and high school. The credit unions in my state used to go to the school districts and offer to teach the 1/2 hour per week class for free (and provide materials), but kept getting turned down because the districts felt there was already too much required curriculum to cover.
Go credit unions!
+1 Wish I’d known about them as a kid. I taught my kids about them. Credit unions are awesome. At least, ours is. So much easier to deal with than the banks.
+1 for Junior Achievements! Great program to volunteer you time to teach kids these skills too.
i’m a junior achievement volunteer! so far, I’ve only taught the elementary school curriculum, and i’m super sad because covid ensured that I didn’t finish either of my classes this spring.
Sometimes you have no choice to take the lower prize per month
but when you have the coice, think ybout it
Cheers from the choir! We have same system here in ????????. Not as much real life/world skills as a dewy eyed go getter requires.
Ugh, I hate this method. Every dealership was like that when I went car shopping for the first time.
D: How much do you want your monthly payment to be?
Me: I want to pay less than 30k for this car.
D: But, payment? 600? 400? Write down a number!
Me: I don’t care what the payment amount is, I will deal with it once you tell me the price of the actual car.
D: Okay, but how much can you afford per payment?
Me: WHATEVER. PAYMENT. ENDS. UP. THE. SAME. AS. THE. NEGOTIATED. PRICE. OF. THE. CAR.
Seriously – I believe I had this EXACT conversation with the sales guy when I was buying my first car!
They *really* don’t like it when people like us come in to buy a car 😀
I got lucky and got a loan from the Bank of Mom and Dad for my current car (I didn’t have a loan on my previous vehicles). The dealership kept trying to talk me into their financing, even after I told them I had a zero interest loan and my backup financing was also a deal they couldn’t possibly beat. Those people are incessant.
Same here. When I told them I wanted to pay the car off in two years (retiring…happy dance!) they were so “worried” for me. “But that payment will be so high!” with horrified face. I finally told the guy that making the payment was my problem. Him getting the car down to the total price I was willing to pay was his. *ugh!* As it was, I think I payed about $25 more per month to pay it off in 2 years.
Our last two vehicles were paid for in cash, and the dealerships did not like it one bit. They harassed us incessantly about payment options. I actually said to the salesperson at one point, “why can’t I just pay for the car and take it home?” They made it so hard to do that.
Here in Sweden You cannot buy a car with cash, unless its a private sale,
not even at a “used car place”. (forgot what they are called)
There have been to many cases of money laundering scams.
Eg: Buy used car for 100,000SEK, insure (lowest allowed),
drive the next day to town nearby, sell for maybe 80-85,000SEK.
Money cleaned.
The cancelled insurance maybe comes in at 60-100SEK.
US$ – SEK = 9.30SEK per $
Ditto this one. I wanted to negotiate cost of car before talking financing. They kept pushing. Finally I said, I’m paying CASH ! After we agreed on price of car, they still wanted me to finance it. My salesman said, he understood, but they were still required to introduce me to their ‘financing guy’.
My kids were fortunate that the school system started requiring a Personal Finance class to graduate. The class discussed cars, rent, insurance and other real life expenses. Wish all schools had this class…
Readily agree that this type of thing should be taught to high school students. This and credit card debt, balancing a checkbook, etc. It should be taught in 10th grade when a lot of students start working.
In the same line of advice, f you haven’t shown the kids/young adults in your life this or a similar table showing the power of compound interest, do it now! The earlier they can save even a little, the more powerful it can be.
https://www.moneyunder30.com/power-of-compound-interest
Oh man wait until she buys a house and looks at the Truth in Lending. I hate that page with a passion.
We have always tried to do our financing thru a credit union to both support the community and get best rates.
I work for a wealth management team in Boston. Every semester we sponsor a financial education course at one of the local high schools. The course teaches everything from what are stocks, bonds, and mutual funds, to details on college loans, credit cards, car loans etc. This should be a mandatory course for all kids though! That 18 year olds are taking on a huge amount of college debt without really understanding what they are getting into is crazy.
I wish that course is available in our local high school seniors.
When I got accepted to college (many years ago), the first invoice that came with the letter showing the tuition and room/board cost and how various financial aid was being applied was challenging enough. The concept of the loan that was accumulating interest while you are in school was also a foreign concept. Especially for families who rents and don’t have much experience with mortgage and loans. The sad part was, I actually understood more than my fellow classmates being an engineering major and understood the math.
If Kid 1 is putting any money down before financing on a car that will help with lowering the payment regardless of how long the finance. If anyone can read the fine print (whether on the finance contract or on a commercial), the finance company (like Ford, Chrysler, etc.) will charge at least $1,000 per month extra. They will also want you to have an extended warranty which will also up the monthly payment. Also, if you have the dealership throw in the title and registration, that will help Kid 1 from having to go to the tax assessors office.
Also Kid 1 should keep in mind how much her auto insurance will go up with a new car.
When I bought my Escape in June 2015, my mom and I agreed to put half down and then when the first payment came in to pay it off. I’m glad we decided to do that. It’s nice not to have a car payment.
I drove the salesperson at the dealership nuts before I signed anything. I looked under the hood to see the engine. I got down to tire level to see if the tires lined up with the perimeter of the frame. This is a great way to see if the SUV will be in a roll over accident. The more the tires are pushed towards the inner part of the SUV, the more it will roll over. I noticed my car came with Continental tires, which I couldn’t do anything about at the time of purchase. That was the tire that the plant had when the SUV was made. I switched them out with another tire after coming back from a long distance trip.
I also bemoaned that fact that Ford stopped making standard shift cars for the Escape back in the 1990s early 2000s. They make them for the Mustangs, but not really for any other car which stinks.
My husband wanted a standard for the truck we bought last year (but started looking 1.5 years earlier), and started with Ford. Turns out there are most no pickup trucks made with standard shift anymore. I think he found three or four of any make made in the last ten years.
my x-terra has a standard transmission, because I vastly prefer them. But Petunia also has over 200,000 miles on her, and she’s beginning to age.
I have fits of rage every time I think about a new vehicle because I have basically 2 choices for a standard transmission these days.
I actually got that lesson both from my parents (WAY before I had any reason to get a loan; my parents were big on fiscal responsibility) and in school (I think 7th grade math). But my favorite was in the class I took to get a credit on my first mortgage. They had each of us fill out a form with the loan we intended to ask for, and then graphed different loan terms (length and APR); and then graphed „if you pay extra each month.“ That’s really what should be covered in high school. That and how income tax works. And practical training on how to use a fire extinguisher and why you don’t throw water on a grease fire.
Home economics and finance 101 should be required classes for todays kids. At least in my opinion
The FDIC has an online program called Money Smart that is full of good financial information. It’s free too. Here’s the link for the adults section:
https://www.fdic.gov/consumers/consumer/moneysmart/adult.html
They also have children’s programs broken down by age, if anyone is looking for some extra lesson plans for home learning:
https://www.fdic.gov/consumers/consumer/moneysmart/young.html
There are some programs for people with disabilities as well and some in Spanish (there may be other languages, but I’m not sure about that). ????
Also, don’t necessarily go with the shortest term. Ask what length of time has the lowest interest rate. Sometimes, there will be specials and you may get a lower rate at a shorter term or at a longer term. If you can get 1% lower at 5 years than 4, go with the 5 years and pay extra down on principal. I’m sure you already know to ask that, but just in case someone else reading this doesn’t, I thought I’d better add it. ????
As someone who writes math textbooks, I have to point out that this is included in math curriculums. For instance, in Texas, Grade 7 standards require that students are taught personal financial literacy including how to calculate the sales tax for a given purchase and calculate income tax for earned wages; how to identify the components of a personal budget, including income; planned savings for college, retirement, and emergencies; taxes; and fixed and variable expenses, and calculate what percentage each category comprises of the total budget; how to create and organize a financial assets and liabilities record and construct a net worth statement; how to use a family budget estimator to determine the minimum household budget and average hourly wage needed for a family to meet its basic needs in the student’s city or another large city nearby; how to calculate and compare simple interest and compound interest earnings; and how to analyze and compare monetary incentives, including sales, rebates, and coupons. Now it needs to be reinforced at home, covering it at school is not enough. But schools are trying to include this.
Good for kid 1 to figure it out.
My mom, who paid the bills was terrible with money. My dad, who SHOULD have paid the bills, didn’t like to buy anything unless he could pay cash. My mom bought stuff {mostly little stuff} and hid it from my dad but she was controlled somewhat while he was alive. Once he died, she went into big dept over and over. My sis and I had to bale her out over and over. We both really resented it. If she controlled herself {mostly} when my dad was alive she COULD do it, she just didn’t want to. So it fell on us. Both my sis and I tend to be frugal just as a response to my mom.
I teach this! When we are doing the exponential chapter.
My husband has taken to sitting down with Kid (14 yo) to do the weekly books with her. He’s walking her through how to write checks, managing a budget, paying online, balancing the checkbook, etc. He spent a hour the other day on “what are all these numbers on a mortgage statement?” We’re hoping she can run the household finances next summer (with supervision of course).
There should be classes for simple banking and accounting and how to shop and budget for your purchases in junior high and a reminder class in high school for all the students, maybe especially for those headed for college. I’d even throw in a first aid class. I gave a first aid class to 7th graders because a friend had a 7th grader who was interested. It was an optional class and basic for a few afternoons for a few weeks. I remember about 10 or 12 kids ended up taking it. The kids were great, much more enthusiastic than some of the First Responders in classes I was teaching. Within a year two of the kids had needed and used those skills. Life skills are never wasted.
Holy macaroni. Even the 4-year option is highway robbery! Well, I don’t know about the banking environment in the US, but over here the interest rate is down so low, we’re closing in on zero percent for long term loans.
What’s stopping people from simply taking out a loan with a bank and pay the dealership in cash?
@HamsterDesTodes Usually an unsecured loan from a bank has a horrible interest rate. Seriously, 9.99% up to 21+% would be typical. Car loan, boat loan, motorcycle loan, or home equity loan are cheaper because there’s collateral they can repossess if you default. There are car loans under 5% through almost every bank or credit union, and the car dealerships are also usually between 0.99% to 5%, but these are often only for NEW cars. The example $12k vehicle is probably used. Those interest rates of 17% and 21% for the stated payments seem high even for a used car, though. Yes, we can use a bank loan rather than the dealership bank loan, and we often do, but I know my credit union has declined to give us a loan for a car over 8 years old. Money is frustrating for sure!
I´ve had that feeling and thought A LOT: the indignation and the “Why does school not have a class dedicated to prepare you for the adult requirements?” (Doing taxes and so on)
We had a slightly different take on borrowing money to get a car. The car dealers wanted something exorbitant and we were going to just try and fix our junker and cross our fingers. In the meantime, my mother-in-law was telling us that one of her CDs was maturing and she wasn’t going to be able to get a good interest rate for the next time period. We thought about it and proposed that she loan us the money at a rate above what she would get and less than the car dealers. We signed a note with all the details spelled out. It ended up being a good deal for all of us.
I am a high school math teacher. Taught a class called Applied Math. Was really a personal finances class. Did a full unit on financing, interest, compound interest, credit scores. Best way to freak out a car sales man is to pull out a calculator!!!
good call. when i bought by first car last year, I watched a ton of car finance videos first… boy that was a whole adventure. I feel like no one ever gets a great deal on their first car though, seems to be like a rule of the universe
The math is here is hard. It goes into algebra. (if you do it right, pretty complicated algebra) HS students avoid hard. I read an interesting piece on 401K rates, which is essentially the exact opposite math. People had little understanding how much money “low risk 5%” and “high risk 8%” meant at the end of 30 years. (btw, its a lot. at least double the final value) Men tended to take too much risk, and women too little (compared to a long term optimal calculation)
I’ve seen lots of zero interest offers on new car commercials. I’ve thought about it myself, but I’m just not in the frame of mind to deal with a car salesman. I really love the new Subaru Ascent.
When my Mom’s husband died in 2014 she decided she wanted a new car because they had a big SUV. It had very low mileage and I told her she should wait a bit, but in early 2015 a scoundrel car salesman at Buick called her and talked her into trading it in because it was a desirable pre-owned model and he could get her a deal on their new baby SUV the Encore. He told her she would be better off leasing and she did and boy was that an expensive mistake. After the fact I went to the dealership and made a stink about preying on little old ladies and found out that when my Mom and her husband had bought the Enclave the financial guy had talked her husband (who at the time was ninety) into purchasing a ten year extended warranty. I flipped out but there was nothing I could do and boy did I try to get them for something. So after the three year lease was up and I asked them how much it would be to buy the car, they told me $19,000 which would have made the car about $40,000. My husband and I tried to get her to change brands but she liked the service manager so she decided to get another Buick. So we took her in and the salesman showed her a 2017 Envision that was loaded and had seventeen hundred miles and she wanted that car like a teenage girl wants a convertible. We negotiated and got a good deal but like your daughter she wanted a lower payment and in the end my husband said it’s her money so “let it go”. So the car is nice, but I found out when the president was doing the tariffs on Chinese goods that GM was asking for a dispensation from tariffs because the Envision was made entirely in China for the luxury market there, but they had exported a few thousand to the U.S. and didn’t want to pay. So she bought a Chinese car unbeknownst and is going to have to pay about fifteen grand in interest. It’s kinda funny. Also she swears she was told later by the salesman that she “could” pay it off early and save on the interest, which was totally untrue. I have basically told the dealership manager that if anyone calls her or sends her anything about trading in her “very desirable” vehicle they’ll be sorry.
My Dad gave my kids enough money to put a good down payment on a car when they graduated, but none of them did and they just share my old Volvo wagon which keeps on chugging along. My husband thinks we should get something more up to date for safety reasons and reliability, but then Covid 19 happened and getting a third car didn’t seem very important anymore.
Lots of Luck to your daughter, I remember buying my first car with my own money and it felt great!
My husband and I have talked with our kids about money and spending. We have also stressed going over accounts once a month. The weird thing in the last couple years the credit card we have given them for school and emergency has been compromised twice. Easily taken care of turned out both times it was my husband’s and not the kids. But it opened conversations with them about finances and to check their accounts. We have also had conversations about future spending with them because we live in a very expensive area and chances are none of them will probably live here in the future after we retire and move. Which is sad I do really like living here but to get our dollar to further in retirement moving makes sense.
While some schools have a life skills class, I think it should be a requirement not an elective. Good luck on getting the car!
I’ve had my identity stolen 3 times. 2 times, were hacks. Never found out about the 3 time when someone beat me to filing my income tax return. So I am a little paranoid. I never let my card out of my sight so it can’t get copied. I pay attention to articles about card readers at gas stations having were card readers were set up to get info. I check to make certain that there is only one layer on anything that I put my card into. And my purse/wallet are RFID protected.
Teacher here. We do offer this class in most HS. No ONE takes it because it is not honors or AP or IB and it would hurt their precious GPA. It is usual part of a business program or called non algebra math. So for the record we try but keeping that almighty GPA is more important (yes, I despise GPA and I understand the short term value of them.) but again who remembers theirs but remembers those moments when you had a breakthrough in understanding (like kid 1). We need people to value education and not just do it to get a grade. .
Make sure to also ask the price without any payment plan and compare the payment plan they offer with the car loans offered by a few banks.
Every single offer from the 3 banks I asked was lower than the payment plan.
This is great advice!
A long time ago Government and Economics were full credit classes. Half of Economics focused on business and the national economy, the other half was more focused personal finance. When they decided to turn both classes into half credits they took out a big chunk of the personal finance portion not to mention some rather important things regarding government and law. This hurt everyone in the long run. Now, at least in the state of Florida, personal finance is coming back as an elective choice for students that hopefully will be required in the future. However, I personally would love to see education get to a place where at least 11th and 12th graders were learning new things but rather applying concepts and theories, having already learned the foundation during a previous school year. Of course, I also understand that’s easier said than done.
Unfortunately the problem with life is that sometimes even knowing that in the end you will end up paying far more for the same thing, many people can’t actually afford to make higher weekly payments. There’s a Terry Pratchett bit from Sam Vimes that always sticks in my mind best, especially as I’m from a poor background and got a scholarship to a private secondary school – it hit very close to home and was exactly right. It’s from Men At Arms and is as follows
“The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.
Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.
But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that’d still be keeping his feet dry in ten years’ time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.
This was the Captain Samuel Vimes ‘Boots’ theory of socioeconomic unfairness.”
I read that in hardback back when it came out as atroubled teenager and it still rings true today – no-one beats Tezza for insightful satire..
I read this last year . It agreed perfectly with studies of decisions by those living in poverty throughout the world.
I am still working my way through more of his work, sometimes funny, sometimes biting.
So true. It’s almost like the rich designed the system so that… but that’s crazy talk. Our public servants would protect us from financial tyranny ????????
Wait till they buy a house …it will make the car seem positively cheap……..LOL
Could not agree more. And why stop at schools? There are functioning adults out there would could benefit as well. My folks had me adapting the real price thinking before I left HS. It’s helpful on the job as well.
Good luck with the new car!
Trying to explain health insurance to my 17 yr old, who wants freedom as soon as he turns 18. He is rethinking his choices at the moment
The last time I got a loan to buy a car, I had already gone to my own financial institution (credit union, NOT a bank) and looked at payment possibilities with my financial coach. The car company was annoyed when I refused to finance through their chosen set up but it was way better for me. Same financial institution held seminars for first time home buyers that explained all the fees and financing and had their loan experts, financial advisors, a real estate agent and a lawyer there to talk about their roles, fees, financing, pitfalls etc. When I finally bought a house I was quite prepared, knew ahead of time all the fees I would be paying (legal, home inspection, appraiser – it was a private sale) and both my financial coach and loan advisor worked with me to ensure I was in good shape. This made the process so much less stressful and reassuring.
I’ve always said that high school should have a Life 101 class.. Balancing your check/debit account, personal budgeting, what is credit – how to feed/care for it, basic car maintenance (check fluids/change tire), basic first-aid.
These are all things we worked with our daughter on, but it’s so surprising the number of young adults that can’t do/don’t know any of these things.
Kudos to you for giving your children the advise they need to make an informed decision.
Every school should teach “Real Life 101” and maybe “201”, also. However, you can make pretty good start on it at home if they don’t.
Lo, these many years ago, my late husband went away to college without ever having done his own laundry. He had pink underwear (he told me) for the first 3 months he was there because he washed his red comforter with his shorts and T shirts. Another classmate wore the same clothes for a week because his mother was out of town and didn’t drive the 50 miles to bring him clean clothes and pick up his laundry.
My children were washing their own clothes at 12 – tall enough to reach into the washer – because I declined to raise helpless kids. They also had chores that needed to be done or I would nag endlessly.
Everybody cooked in turn. (My son still prefers not to eat green vegetables, but I did finally convince him that meat loaf could not be paired with mashed potatoes and mac and cheese. He does make a tasty chocolate cake, from scratch, if he wants it.)
I started their fiscal education earlier than that. Each had a check record for their account at the “Bank of Mom”. Allowance was deposited on Monday and you could not spend money that was not there. A loan could be negotiated, but must be paid back before any more spending could occur. This is not real life, but a six year old can handle it. As they got older, the rules were more realistic. The “Can you afford it?” question was not popular, but it is something they ask themselves now. It seems to have worked. They are self-supporting with retirement funds and no student debt in years.
Yes, it is more work than letting school teach it to your kids, but it beats nobody teaching it to them at all. Children should not be falling for predatory lending arrangements because nobody ever taught them what what to ask.
Two thumbs up for the practical parenting win! And I hope Kid 1 gets a reliable car at a good price today :-).
I’ve heard of one school that mandated every student go through what they considered their “essential” home living classes. The most basic, “how to fix a leaking faucet/toilet. Unclog a drain. Clean minerals out of toilets. Replace light switches/outlets/fuses. Patch holes in sheet-rock…”
..and basic financial skills. Of all the crap classes I got to take in middle and high school, those would have been wonderful.
Fortunately on the finance side, my parents worked on us kids…
You made me lol ???? thank you for this.
Good job. I’m impressed she understood so quickly, even with the numbers right in front of her. The lure in a dealership is enormous. I’m glad you and Gordon went with her.
Yes! Great thing to teach. Same with credit cards- that cute outfit or night out can cost you a lot more if you don’t pay off the credit card each month.
I have taught many young people who interned in the office about personal budgeting. The difference between NEEDS and WANTS. It can make a huge difference in a person’s life long term. No good comes from going to the ATM after 10pm. Saving now gives you options later.
One young couple were “foodies” and liked going out for fancy meals. As we were going over their spending for the past month there was a $350 restaurant charge for the 2 of them. Not a special occasion. He said it was an outstanding meal. I asked what they had and they couldn’t remember. That was when things clicked for them and they changed their spending habits and were able over time to save up for a mortgage down payment.
That’s why I cook when I am at home. If you get the ingredients on sales, it’s cheaper than going to an expensive restaurant. If I’m going out (especially in the heat), I will get take out since I don’t want to cook.
congrats on the teaching moment, but it is sad that this is not taught anymore, I learned this in Jr. High, and again my freshman and Jr. years of High School, but because my dad broke his back when I was in 2nd grade, and we lived on social security and out garden and home grown pigs/cows….we were fine….but careful….so I was taught by example all of those years, and when I graduated from HS I had enough cash to buy a car…..but I bought a used one and save a lot of that cash for later, and learned to work on that car too
Please ask your bank or credit union what they can do for you. You’d should shop for credit just like you shop for a car.
THANK you guyz for being good parents. Thought of you as I plowed my way thru web hosting sites domain names just to WFH. Life. We need to be filthy rich.
Don’t know the make of the car you are considering, but I saw ads this weekend indicating Dodge, Ford and BMW has zero % interest on new vehicle loans. I suppose dealers will have more information. Just an idea as I haven’t paid interest on a car loan in more than 10 years.
Those 0% loan deals are dependent on your credit score. As a young person starting out she most likely has not had a credit history for the required length of time to obtain the score needed for 0%. Generally speaking you need a score of 740 out of a possible 850 to get one. This is a “Very Good” 740-799 or “Exceptional” 800+ rating.
Good article from Experian on them and the other things to watch for if one is offered to you:
https://www.experian.com/blogs/ask-experian/how-to-get-a-0-apr-car-loan/#:~:text=And%20if%20you're%20hoping,to%20see%20where%20you%20stand.
That’s why my credit union that I retired from has a yearly event where all the employees go out to local high schools and educate the seniors about how much credit actually costs, and how to budget for real life. It’s a real eye opener for the kids!
The funny thing is, my Dad had almost the opposite conversation with me. I wanted to pay off as much of the balance as I could asap, but I realized, the longer loan had a lower interest rate and it could be paid off early, so you could get the benefit of the lower interest rate with still paying it off faster if you wanted to.
More importantly, my Dad noted that the return on my investment account was higher than the interest rate of the loan, so to him, the loan meant having more money free to put into the investment account and therefore generating money. Basically taking into account multiple moving parts and accepting some degree of risk as well. The first time I looked at it, I saw the same thing, paying extra for money that I didn’t need to borrow right then, but that wasn’t taking into account what the money could be doing elsewhere. It was also pointed out to me that actually having an auto loan for a period would help my credit score – I still don’t know how that works or why it works like that (seems silly to me that having debt can make your credit score go up), but this is the world we live in.
I used to teach this time value of money content in college. Car loans, student loans, and credit card debt were always eye-opening for the students. I made sure to get across the concept that the best way to screw up your financial life short of taking a loan from a loan shark was to have credit card debt.
Another vivid memory is walking in to negotiate a mortgage loan with a calculator and a Time Value of Money textbook. The broker couldn’t explain the payment on a particular interest rate that didn’t match the little wallet card they gave her to refer to. She didn’t realize there was a formula… After I whipped out the textbook, showed her a cash flow diagram, the Annuity given Payment formula, and calculated it for her she was amazed. Moral of the story: always check the calculations because the people you’re dealing with often aren’t really trained to do anything more than push a loan that works for their firm.
My father hated debt. He saved money and when it came time to buy a car, he paid cash. He bought a new car “whether he needed it or not” every 7 years. He never had a credit card, because in his words, “If you can’t pay for it, you don’t need it.” When I got married, we were dead broke, and I’m talking absolutely dead broke. We were in college, we had to pay rent and lived in married student housing, and things were ridiculous. Food stamps, as they called them then, fed us. We had college loans when we got out. We worked, we paid, and we cleared the debt in a few years. To this day, despite having enough money to do everything we need to do, I still do that. I see commercials about how low payments can be, and I always think, “If you saved money in advance, you wouldn’t need a loan.” It sounds stupid, but I go to Walmart for everything but food, because things cost less there than at grocery stores. I buy shampoo at the beauty outlet store in gallon jugs of concentrate that needs to have water added to make it usable. Ditto conditioner. It’s salon quality stuff, but I pay about $8 a gallon and get 5 gallons of each for that price. When things I use regularly go on sale, I get some, because I will need it later. I pushed my husband into paying off the house’s 30-year mortgage in 7 years. We have credit cards that we use for pretty much everything, and those get paid off completely when the bills come in. We use them as a convenience to not have to drag around a checkbook or cash, not as a lending vehicle. We pay trash pickup for a year and get it for 12 months for the price of 10, if paid monthly. I always ask about services like that, because you can get them cheaper if you pay in advance. We have no house payment, no car payments, and no debt that’s accruing interest on a credit card. Even the medical offices here will give you a discount, if you pay your deductible ahead. It’s nice.
Our children learned a lot from the fights we had over money because my husband loved to buy big things on credit and get bills every month and I loathe that. I taught them that for things they want but don’t need, they should remove all coins from purse or pocket and put them into a container to wrap and use that money for those things. You’d be amazed at how much you get from collecting those coins for a year. I always used them for Christmas gifts when the children were young. To encourage them, we’d put a quarter into every pair of socks I washed and put together for them to wear. Every day, they’d get a quarter to add to their jars. What’s truly astounding to me is that people think it’s just fine to pay interest on something for longer than the life of that something will be. And then they stick to it and pay all that interest to keep money in their pockets, never realizing how much is going out and wasted on interest.
Good on you for teaching your child that easy, quick, simple lesson so well.
I have a friend who, after her car is paid off, continues to make the same amount of payment…but to herself. She puts it in a savings account. By the time the car is paid off, she’s already used to that payment, so it requires no adjustment in her habits. Then, when she’s ready to go buy a new car, she generally has a down-payment of several thousand dollars in the bank, which of course allows her to keep her next car payment low.
I aspire to like her someday.
Toyota was having a huge sale when I bought my little Yaris brand new in 2009 (the only way I could have afforded a new car). They were offering either $500 off or 0% interest. The agent I chose to work with offered me both and very clearly sat on his hands. I said “no interest, of COURSE!” and he gave this huge exhale of relief and said I wouldn’t believe how many people took the $500. I think I saved nearly seven THOUSAND dollars picking no interest (he ended up being able to get me both, because seriously, once you’re not paying interest, another $500 is negligible.
But what was interesting was that he could present the offer, but was not allowed to guide the customer one way or another. If the customer asked specific questions, such as “how much will no interest save me over time?” he was free to answer, but he couldn’t overtly push anyone. I’m dead certain that’s how Toyota paid for the 0% interest cars, with people who picked the $500 because they didn’t know better.
Good job teaching your kid about loans – Car buying is one of the most painful shopping experiences.
Right now with the current market, there might be some 0% APR deals – The economy stinks and the automobile market is down like 50% compared to last year in terms of number of cars sold. The more data you have on hand in front of you, the less they will take advantage of you.
I hate the car buying process. Good luck!
Another thing to teach a first time borrower: when it says in the loan contract that you will make a payment of x amt every month, what it means is you must make a payment of at least that amount during EVERY 30 day period. If you pay extra this month, you can’t reduce or skip the payment next month. If you do, you will be delinquent.
Flip side is if you can find a higher savings rate, than the loan rate. Then put money into the saving and take the longer term loan.
Also, many dealers are offering 0% loans to move cars. Though this is often balanced by a higher price.
I so agree it should be a mandatory class for high school graduation. There are several other options here in Texas as well. One of them is called Money Matters. It’s a great class and teaches a lot of personal finance skills. I have also taught a lot of those skills in College Transition class to Juniors and Seniors.
Ironically, we just bought a car in College Station (a 2 hr drive away) on Saturday for our high school kid who will be a Senior in the Fall. Why drive 2 extra hours? More inventory options, lower cost, lower tax rate, better interest rate offered than where we live. (We compared Houston, Dallas, Austin, San Antonio, etc.)Had almost the exact same conversation. We also explained paying “extra” towards the principle, benefits of paying it off early, etc. I so wish I had video of when we had our kid do the math to see what the REAL cost of the car was depending on payment plan. Kid was so shocked and outraged! Then when went into the final meet with the finance person… again, the shock! Even after we prepared them. (And yes, the deal was totally worth the drive there and back.)
Absolutely should be taught in schools. It’s why I hate when people advertise things to me by the monthly payments and not by the total amount I’ll be paying…smh
The way you handled the situation was best. Real life ed is so superior to classroom. That’s what parents are for (mostly). School of experience. The colors are Black and Blue. Wisdom can be found there.
The local university credit union has started doing a round-up savings account automatically for the kids. Every purchase on the account is rounded up to the next dollar and the change moved to a savings account that they can only touch once a year. Quite an eye-opener when they realize how much that is at the end of the year, but definitely something to encourage them toward saving for the future without being preachy or lecturing.
And yet to this day, we’re still doing train problems. Your train is going x mph, it leaves A at 12:24, what time will it arrive. Just learn to read the train schedule, and factor in delays.
How to shop with a 10% off coupon total purchase coupon, versus a 30% off regular priced items only coupon, which one is a better savings, nothing.
I remember in high school I had a finance class and they talked about reconciling your bank statement at the end of each month. This ended up being very helpful when I started working after graduation and had to pay rent, car loans, and student loans. I am amazed at how many people don’t know how to do that or that just because your bank balance says $1000.00 that may not be the money you can assess as you have bills that are in transition of being paid.
One of my co-workers who is in his 40’s was still paying off a $3000 student loan from his 20’s because he had to have a nice car, two or three vacations a year, a nice town house, nice shoes, and it was only a little bit of money a month. This same co-worker has relatives who pay anywhere from $600 to $900 a month for a car loan as they never pay off the loan but roll it over to the next car and of course they have to drive nice BMWs.
Financial awareness and fiscal responsibilities is so important and very few parents really teach that to their children.
This reminds me of a fun experience I had at Wells Fargo as a college student. When I visited for some unrelated reason, the banker started pushing this fancy new high interest savings account. But there were all of these weird limits – a maximum you could deposit into the account each month, a lower interest rate after some months until reaching the standard (extremely low) savings rate, etc. So, I did the math. I got out my phone, opened the calculator app, had the banker walk me through the entire process, to determine the maximum amount of extra $ I could get from opening this new additional savings account. $25 exactly. I looked up, at the ever present banner advertising how much you could get by referring a friend to open a Wells Fargo account. $25. I called bullsh*t. Someone had run the numbers and decided that each additional account was worth $25 of incentives. Except, in the case of the savings account, it was very unlikely anybody would get their maximum of $25 extra. This was years before the Wells Fargo scandals, but in retrospect makes perfect sense.
As soon as I graduated (my student ID card was linked to my Wells Fargo account), I closed all accounts with Wells Fargo and switched my banking to Charles Schwab and Ally. Moral of the story – stay away from big box banks, and bank with someone who doesn’t rely on charging you fees to stay in business (credit unions, investment banks, online banks). And always run the numbers yourself.
They are taught!
I teach this concept in my 7th grade and 8th grade math classes.
These concepts are in the math standards.
However, just because they were taught does not mean that the kids related to it and remember it. 🙂
The interest rates seem too high. EMI of 350 for 4 years for a loan of 12000 means an interest of close to 18% whereas 300 for 6 years means a rate of about 22%. Here in India the interest rate for a new car is usually less than 10-11% (varies quite a bit across banks) and less than 15% for used cars (again varies significantly based on banks and the condition of the car, it can be less than 10% as well). Also while it is standard that for long term loans the rates would be higher, 4 and 6 are too close. In India the rates won’t change because of that. I would have thought the rates would be lower in the US! Are these made up numbers?
Also I would generally say there’s more to the calculation but with the numbers you have mentioned what you are saying is correct, 4 years is better than 6. However for a hypothetical example to make my point, consider a 9% per year interest rate scenario where the rate remains same for both 4 years and 6 years (i.e. an India scenario). Let’s also assume there’s an investment scheme of moderate risk where the return is 10% per year (they exist but currently have taken a hit due to Covid19).
So with 9% for 4 years, the EMI will be about 299. Assume you continue to pay 299 for 6 years, 4 years towards the loan and then for 2 years in that investment scheme. Then in 2 years with 10% annul return you’ll accumulate $7974. Therefore after 6 years you have a loan free car you have possessed for 6 years and a monetary sum of $7974.
Now for the 6 years scenario, the EMI for 6 years with 9% interest rate is about 216 which leave $83 per month in your hand to invest. You invest that in that same investment scheme for 6 years. $83 investment per month to a scheme with annual return 10% will accumulate a sum of $8211 (power of compound interest). So in this case after 6 years, you have the same loan free car and a monetary sum of $8211, which is better than the 4 years scenario. Here I have ignored any tax implication but in practice you’ll need to take that into account as well. So to summarize, what’s best for you really depends on your risk appetite and monetary discipline, the calculations are not always as simple as they seem.
Well, I hated math when I was in school. I had the aptitude for it but had a mental block of “I hate math”. I was a writer and loved composition and literature and still do. I edit on occasion and still have a profound love of the written word. In any case, there was this class I decided to take instead of trigonometry because I didn’t want to have to aneurism in trig, so I took Math of Consumer Economics (MOCE) instead. Many were disdainful and told
me that was math for stupid people. I didn’t care, I just figured it was easy, but not the case. Even so, many was able to wrap my brain around the practicality and necessary real world lessons. I learned how to budget and calculate interest rates and do amortization schedules, plus spreadsheets. So when I bought my first car and and the finance guy asked what I wanted my payments to be I replied “first let’s discuss my interest rate.” Shocked him as he kept wanting to push payments and I took out the old hp calculator to do the math. Best class ever. Don’t know if they still have it in the current curriculums.
Agreed. I never understood why our school taught AP Calculus but not Basic Personal Finance.
There are so many things I wish the school system taught. I know they have limited budgets, over worked and under paid teachers but seriously how hard would it be to teach a semester class about personal finances senior year when kids are prone to take student loans and sign contracts. And don’t even get me started on cursive writing what happened to cursive writing my kids have no idea how to sign their name til I taught them.
My friend is an accountant. She sat my boys down and explained “interest” to them, from car payments to mortgage payments. She talked about credit scores and how they’re calculated. She talked about insurance… she explained about money in all forms… Best couple hours they’ve spent outside of school… Both of them are saving … the oldest boy got his car from the credit union with the best interest rates and should have a 5 year loan paid off in 2 1/2… he got a good deal on insurance too… the youngest is saving 1/2 his salary with the idea he’s going to buy a house… both have credit cards that they pay on her schedule… and very high credit scores… I hope they can keep it up…
There was a local furniture store which advertised price and easy monthly payments for x years
The monthly payments were about 30% per annum interest on the full amount
Not quite as bad as the really short term loan scams but up there
Knowing how things work make a big difference, but many people fall to the allure of affordability. For example leases look attractive because the payments are low (you are paying depreciation plus interest), but they have hidden catches. Some of them have weird interest terms, others are very low total mileage w severe penalties if you exceed that. Where they really get you is the infamous excess wear and tear, they decide what that is and unless you absolutely kept the car pristine, they can take you to the cleaners.
Then you have the dealer service charges and add ons. For example dealer added options are way over priced, you can get it done by a third party shop. Then dealers push crap like service plans and rustproofing and paint sealing and the like,they make a lot of money on them and most of them are worthless. Service plans are really bad,modern cars are so we’ll made that the cars they offer service plans on rarely require them, they don’t offer affordable service plans on crappy cars,they would lose money.
Another fact,outside things like registration and title fees, those mysterious handling charges are negotiable, if they insist you have to pay the amount they claim,walk away and see what they do.
You can get cars w 0 % financing but you have to be careful with that. Often that is a loss leader to get people in and they offer it only to people with such good credit they likely don’t need financing. The other thing that is lost in the small print is with 0% financing there is a caveat that dealer contribution can affect car price,and that is key, they generally charge near sticker price for it (which in of itself is a fraud). If going for 0% do your homework through things like carfax and trucar on prices people are paying ,not the.sticker, to be able to negotiate.
The other gorilla in the world is depreciation, you are losing like 5 grand the minute you buy it new or more,so in a sense if you finance 12k car you are getting 7k of value. I would recommend not buying new, cars coming off low mileage leases will have relatively little mileage but will have a very discounted price tag. Given how long modern cars last,you are getting a car w relatively low miles that can last so long you won’t miss the new car experience.
But the cult of the low payment persists.You go to an RV show and the models don’t even have a price listed,just payments, and these can be up to 20 years (,,think of the interest!). Worse RVs depreciate at a hyper rate, worse than cars, and the way most of them are made they may not exist by the end of the loan, they literally fall apart with some exceptions.
Had 8th grade students calculate car loans as application of percentage unit. Showed how interest builds, how actually pay more on longer term. “Thanks Mr. C, you’re getting ripped off with these long loans! I’m glad you told us about this!”
Three years later, taught some of the same kids in Personal Finance in high school. “Wow, we never knew about this! Thanks, we’ll be sure to remember it!”
Years later, overhear one, now a young adult, complaining that nobody that nobody had ever taught him about interest. Felt like kicking him.
relevant to this post – this is a UK musician going OFF about all the things he didn’t get taught in school: https://www.youtube.com/watch?v=8xe6nLVXEC0
Your daughter is very blessed to have parents, who are still giving her guidance to help make good decisions.
Things I learned when I worked for an auto dealership:
1- New car sales people make crap on new car sales. They don’t start making money until they make x number of sales and they bonus level. Think under $100 for spending hours with someone. That could be the only sale that day or even several days, especially if it’s a dealership that packs it’s sales floor with sales bodies.
2-The real money happens in (A) used car sales
(B) Negotiated interest rates and extended warranties
(C) After market accessory sales
The reason you are strong armed into the finance office, even for cash sales, is because the finance person also tries to sell you extended warranties.
EVERYTHING is negotiable in this office, but it’s their job to offer you the highest interest rate you will accept and not walk out of the office. There is a cap/range on how high they can offer. But say they could offer you 3%, but you accept 5%, they make money on that finance from making the higher rate.
They also have wiggle room in warranties and will negotiate to help a loan go through. But if you have good credit and money, then unless you know you can negotiate, you might accept the extended warranty as a set price and not demand a better deal.
Car finance people do not like handing over their customers to after market, after the loan has been agreed on, because if a person decides they absolutely have to have that window tint, sports package or upgraded music package it will mess up the profit he/she is making and now they have to convince the buyer they don’t need the extra stuff or they have to give up some of their profit to include the new items.
Used cars:
The reason there is such a difference in car prices for the same car has to do with “how much they are into a car”. Meaning, if they took it in as a trade and paid more for it to get the new car side a sale and then sent it to service for basic repair, paint touchups and auto detailing. Sometimes a used car manager really cannot give you a good price, if they don’t have a good wiggle room. But… they will never really level with you, what cost they are into a car for, so you should never fall in love with a used car, before your head gets the deal it wants. Also, rate, warranties and after market above also apply to used cars.
It was a learning experience. Even with this knowledge, I know I could still walk out not getting the best deal, because all these important $ numbers are not provided.
I paid cash for my car. I’m all about saving and paying in cash. I have fallen in and out of love with my car many, many times in the 10 years I’ve owned it. …. I currently love it because it has brand new tyres and it drives like a dream. Lol.
My children are 8 (twins) and they are each saving for their first car. Pocket money is not much 🙂 Legal age to drive here is 18. Child 1 wants to buy Dad’s truck , because he will be elderly (lol) and child 2 has said to grandma, “nanny you don’t drive much and your car will be a great bargain for me to buy.” So both are sharks and aren’t planning to shop far from the nest. The truck and nanny’s cars are well maintained and would be great buys. …… Although a lot can happen in ten years. 🙂
Well, that is basic logic for any loan – the longer you pay, the more you pay extra. However even that 4 year loan is highway robbery.
Here in Czech rep. my bank (www.airbank.cz) offers equivalent of 12000USD (300.000CZK, counted 25CZK/1USD) for 277USD (6925) a month, with annual percentage rate (RPSN – roční průměrná sazba nákladů, includes all kinds of fees) 5,02% and total sum payed (in 48 moths) 330 557CZK (which is only 10% overall surcharge in comparison with your 40 and 80%)
While true, this is how interests and banks work. You need also teach that receiving 4 monthly payments of 250 bucks is no the same of getting 1000 bucks in hand at once, time is also a consideration.
I really wish I had known this last October when I had to go in to negotiate the lease-buy out on my car. Quite possibly the singularly most stressful and hated experience I’ve yet to endure.
Many things should be taught in school, that aren’t.
I charged my first car on my parent’s credit card. And paid it off.
Loved it…but it broke down pretty much every time I took it anywhere.
Always bought a new car after that. Wanted to know I would actually get wherever I was going.
They really need a course in basic “adulting” topics in high school. I recall having to explain all of the concepts of health insurance to my step daughter when she found out she was pregnant. Her mom had always taken care of everything so she had no idea what a deductible was or how to find out what was and wasn’t covered. Banking was a similar learning exercise. Don’t even get me started on the credit card offers!
As someone who has yet to own a car, I really appreciate this post.
A friend and I were discussing “things we wish we’d known when we were young.” Basically, money stuff. Compound interest: if someone had explained compound interest to me, I’d be able to retire. Hell, I’d have been able to retire years ago. My parents didn’t seem to know about this, and they relied on credit. Guess what I learned? Even if they’d had a class about this in high school, I’d be well off. Instead of 59 years old with no retirement. (Okay, a bunch of my money over the years have gone toward health issues, but still.)
It’s not just the car/interest issue that kids need to learn, that isn’t addressed in school anymore. The importance of your vote, at what age you can legally make a will and that you should, how much your education really costs, the real cost of your food/clothes etc and who grew/made it. Good manners, and that using them don’t make you look weak it makes you look like you have enough respect for yourself that you can extend respect to others. So many lessons to learn, so few teaching them.
How about, how to deal with your insurance company(s). That’s a whole other ball of wax!! What a treat it is to have something happen to your house a few months after you bought it, and your a clueless 24 yr old. “Well ma’am hardly any of this damage is covered, and the part that is I’m going to have to give you 10 cents on the dollar. You should really just do everything yourself, so your oremiums don’t go up.” Oh yeah. Insurance adjusters, I’m pretty sure there’s another circle of hell just for them.
But I absolutely agree these things should all be taught in school. Just the buying of different insurance policies would be really helpful. I had to become friends with an underwriter, and finally got things explained. Like the fact that it costs like 5 dollars extra to get full replacement on your car instead of cash value. Or how about full replacement on your house, also a very nominal extra, yet not one has it. The list goes on. They’re sooooo tricky!!
Hi! Actually in VIrginia students in high school are required to take a class called Personal Finance, and it covers exactly this type of thing. I think it is about time!
Both institutions I bank with sent notices that their interest rate was being reduced on all types of savings accounts. I know people in the USA are not borrowing or using credit cards as much. If that continues I know banks will be paying less interest as time goes by. Eventually most savings interest payments will cease. The next step for banks is to start charging a Storage Fee for keeping your money safe.
Even though they fall under different rules banks, credit unions and savings and loan companies follow similar financial regulations whether they are chartered at State or Federal level.
Hah, I just graduated college–thank you for the reminder
My husband sells used cars. His dealings with humans have almost broken him. He refuses to lie, turns his monitor around for every customer so they can see the exact numbers in regards to financing so they see the numbers for themselves and has refused sales to people that are buying cars in the names of mentally compromised relatives. If you don’t understand why your nephew keeps putting a pen in your hand and yelling at you to sign your name, my hubby has already called the police. That’s an egregious example, but the hubster has dozens.
He spends far more time educating customers about financing than he does selling cars. He’s told customers to buy less exensive cars because they can’t afford the one they want. That’s not a judgement call. If you make 2k a month, and rent or mortgage is 1.3k a month, you can’t afford an $800 a month car payment. (I made all these numbers up as an example, please don’t focus on them. I don’t sell cars, so I’m going by my own best understanding. You can’t afford a car that costs more than your paycheck covers when figuring existing documented expenses.)
He’s had “customers” show up with falsified pay stubs, people impersonating co-signers, counterfeit cash for down payments, and worse. (Guns or drugs or people in trade for cars? Nope, please meet the Feds. They have a lot of questions for you.)
He’s had customers lie and say he forged paperwork, or lied about payment terms. Thank goodness his work has surveilence cameras with sound, because it’s stopped a multitude of frivolous charges and lawsuits. It’s difficult to claim you were lied to when the entire deal is recorded. Including the part where you tried to offer a sexual favor in place of a down payment. Especially when the favor wasn’t yours to offer. (“my girlfriend thinks you’re hot and I don’t mind” is disgusting and criminal. Just in case anyone was wondering, trafficking is a felony.)
The last time I leased a car at a new car store, I told the salesman what advertised deal I was there for. Husband and I listened to the full con job on why we didn’t qualify for the deal. Then I pulled out my ebook and checked out while my better half explained the various laws the salesperson broke. The sale was advertised, the fine print did not exclude us, and we would report the dealership to the relevant state agencies before we filed suit for false advertising (legal simplicity here, but you get the gist.)
We got the deal, and we were asked to never return. So we filed the complaint anyway, because they had no reason to punish us for asking for the advertised deal. It wasn’t entirely the salesman’s fault, he’d done what the dealership told him to do, which was use the advertised deal to suck people in and then write it up at a higher price/ rate using nonsense reasoning. The dealership settled the charges by sacrificing the salesman, despite other customers making the same complaint (on review websites) about other salespeople doing the exact same thing, word for word. Hubby spoke the lingo and made a great witness. No one else knew where to complain except online.
Bottom line, educate the younger generation. I got t my first credit card when I was 14, my parents co-signed. They also went over the statement with me every month and I undestood the interest, the totaled owed and the minimum payment. My financially wise husband that sells cars? He got his first credit card 2 years into college (30 years ago) and thought he owed the entire balance as the monthly payment. No big deal, except he maxed the card out at $900 in one week, (a few nights at the bar and an emergency car tow and repair mid-winter) and then never made a payment because he thought he owed the full amount instead of the $29 per month minimum payment. Terrible terms, at like 27% interest, but not paying destroyed his credit and racked up late payment charges like crazy.
I helped him fix it, but it caused a ripple through our whole circle of friends. He wasn’t the only one who’d never had a credit card before, but filled out a predatory application directed at new students to take advantage. I still can’t beleive high schools don’t teach basic financial understanding for real life.
Heck, I still can’t beleive that the whole system is rigged to take adavantage of the majority of the population even when flagrantly breaking the law.
Then there’s the opposite extreme: recently traded my 2016 for a 2020, because: 0% interest for 63 months! (In other words, I get a lower car payment, a newer car, AND the use of my money!) And yes, the price and trade-in were reasonable (I probably even could have negotiated lower net because it was the last day of the month, and the fiscal quarter — you know that trick, right?)
How about the fact they are going to do you a favor by throwing in a warranty. Then four and half hours later of waiting and signing paper, the final piece of paperwork shows a higher price due to “warranty favor”. Sigh, its the last piece of paperwork on purpose. You are tired, it’s now after seven so you will have to come back if paperwork has to be redone, and you just want to be done with it. If you are like me then you sign the dang paper and feel like a disgruntled idiot because of the whole thing. They wouldn’t even take my trade-in because it had a cracked radiator. I like my new, used vehicle though, so that’s a good thing. Hopefully things go better for you all.
thanks for shairing this post
Dave Ramsey-ite here, so different perspective. I’d pay cash and I bet she could, too, if she wanted to. It can make for a fun self-challenge.
I paid off my last car loan (along with my credit cards, student loans, and 401k loan) more than two years early after discovering Dave, then drove it until it couldn’t drive anymore while saving for a replacement, then I bought my new car for cash outright. Took me awhile to find him (it’s a boy), but $2,300 cash for a low-mileage twenty- year old car (my first Subaru!) in fantastic shape that I’ll probably drive for at least the next 8-10 years while putting the amount of a car payment into a savings account every month was a steal, and I’ll never have a car payment (or any other kind of payment), again as long as I live.
I love my Subi. I call him Travis 😀