Young Money Classroom Activities
Car Loan Hunting
Before becoming entranced with the glitter and glamour of buying that great new set of wheels,
you really need to do your homework. Part of that homework involves pinning down a loan you
can afford with an institution you trust. Sure, you might be able to get a bigger loan or lower rate
somewhere else; but you need to know the hidden costs as well as the upfront costs. For one stop
shopping there is nothing like dealer financing. Dealers will bend over backwards to get you the
loan that will finance the car you want at the price they want to sell it to you. If the price is high
enough, you might even qualify for a very low- or zero-rate loan. But are you really getting such
a loan or is it a higher priced loan simply figured into the higher price you are paying for the car?
Many people are so excited about buying a new car that they seldom question how much interest
they are paying on the loan. They often want the biggest loan they can get at the biggest loan
payment they think they can afford. Does this mean they can afford the purchase? Maybe they
can if they are able to keep up with the payments and don’t mind giving up more of their future
income in payments than is needed. Big loans, big loan payments, and high priced cars can lead
to financial disaster. What if you total your car in an accident or need to sell it for some reason
and your loan balance is higher than the market value of the vehicle by several thousand dollars?
Will you have the extra money to pay off the loan? Will the lender release the title and allow you
to sell for less than the loan balance? You could be in big trouble and this is a common dilemma.
Now that universal default clauses have begun to pervade credit agreements, any default on your
car loan could cause the issuers of other credit agreements you have to increase your interest rate
with them to 24% or more. Could you handle such an increase? If this information troubles you,
you need to look at getting a loan and buying a