How most loans work |
| Text |
Download spreadsheet |
| Amortization, with extra principal |
Loan.WK1 |
| Daily APR, Pmts based on days-in-month |
Loan_365.WK1 |
WK1 files will open properly in most industrial-strenght spreadsheets.
LOAN_365.WK1 doesn't open properly in M$ Works 4.5a. It doesn't support the
@datevalue function. A later version might. Try it. LOAN_365.WK1 can be
viewed in M$ Works 4.5a by striking Okay (many times) to pass the
error prompt when it appears. Offending formulas will load as numbers.
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There is no free lunch |
Auto loan "zero-percent" and low-rate gimmicks:
The cost of credit (interest) is
anything you pay above the cash cost for the alternative to cash, borrowing
and making payments over time. See Truth-in-Lending for details.
The typical auto loan gimmick is low-rate
financing
or dollars off. 0% financing or $3000 off, 1.9% financing
or $2500 off, 4.9% financing or $1000 off, etc..
If you take the low rate financing, you're
prepaying interest in the form of the discount you didn't take.
With the "zero-percent" gimmick, the
larger your downpayment or the more valuable your trade-in, the less credit is
extended, and the higher the interest rate you pay.
In most (if not all) cases, you're better off
taking the dollar discount and, if you must finance, finance at a bank or
credit union at the same or lower rate. At the same rate because, if
your ship comes in (you get a raise) and decide to pay off the loan early, an
early payoff of a "zero-percent" loan will increase the rate
of interest further still since you've prepaid all the interest but
used the borrowed money for a shorter time.
Find out what you're really paying for gimmick
financing. Then shop for a better rate.
Calculate the cost of gimmick financing:
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| Text |
Download spreadsheet |
| "0% or $3000 off" could be 15.26 APR |
Zero_Pct.WK1 |
| "3.9% or $1500 off" could be 9.77 APR |
Low_Pct.WK1 |
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