Financing Issue(s) getting financed?

[fishheadbob]

Uhmm.... Now I'm curious..

Show of hands: Do some people think it's bad form to pay off your loans early? A stab in the back to the financier?

It has NEVER occurred to me that if I owe somebody money and pay it off early that somehow this is an offense.

They've got their money and can now invest it and make what they would of earned in interest. Or they can loan it out again.
Or they can roll around in it in a big pile on their bed. Whatever...

If they invest it they should be able to make as much money as the interest. Plus now they have the benefit of being in possession of the principle / security.

Plus if you pay them off with future dollars (i.e over the life span of the loan), you're paying them off with dollars that are worth less than paying them off with today's dollars. (i.e. due to inflation). So there's a benefit to them.


Interested in what others think..

Loans are usually front loaded. What that means is that the earliest payments are mostly interest payments with only a small amount going to principal. As more payments are made the interest portion gets smaller and more of the payment goes to reducing the principal.
Consider a 20 year mortgage: if a person had made payments on a 7% loan for ten years, then decided to refinance at 5% for 10 years that person would have paid back more, in many cases, than if he had just continued paying off the original 7% mortgage . Why ? He started over and had more interest to pay off. Ask a lot of questions when getting financed. Remember that the F&I guy was once a very good used car salesman working on what he sold, which ain't the same as what's good for you.

 

[smstonypoint]

I believe (and I don't know all the details) if you finance thru the dealership and immediately refinance the dealership may lose any incentive they received for the financing.
In my case I received an additional rebate for financing thru the manufacturer. I knew my salesman and he asked me to make a couple of payments before refinancing because otherwise the dealership would be charged back for the incentive I received.
We don't need to hash out the pros or cons of this again, just explaining what I think they meant about being courteous to your dealer.

I had a similar experience. I had negotiated a cash sales price for a new 2007 Pilot when the sales lady informed me that I was eligible for a $500 rebate if I financed through Honda. After conversations with the finance manager and assuring myself that there was no prepayment penalty, I financed $5,000. I paid the loan off in about three months.

Steve

 

[LD1]

Loans are usually front loaded. What that means is that the earliest payments are mostly interest payments with only a small amount going to principal. As more payments are made the interest portion gets smaller and more of the payment goes to reducing the principal.
Consider a 20 year mortgage: if a person had made payments on a 7% loan for ten years, then decided to refinance at 5% for 10 years that person would have paid back more, in many cases, than if he had just continued paying off the original 7% mortgage . Why ? He started over and had more interest to pay off. Ask a lot of questions when getting financed. Remember that the F&I guy was once a very good used car salesman working on what he sold, which ain't the same as what's good for you.

False.

Example only holds true if the money it costs to refinance is rolled back into the loan.

At the 10 year mark of a 20yr / 7% loan....the principal is going to be X.

If you refinance for 10 years at 5%....as long as you are only financing x and not adding back in closing cost, you will certainly save money with a refi.

It's not rocket science or voodo. It's basic interest. Which is a percent. So it makes sense while the principal balance is higher, you pay more interest in terms of dollars. But from the first payment to the last payment, the interest is the exact same percentage of the principal.

So a bogus example.

 

[smstonypoint]

False.

Example only holds true if the money it costs to refinance is rolled back into the loan.

At the 10 year mark of a 20yr / 7% loan....the principal is going to be X.

If you refinance for 10 years at 5%....as long as you are only financing x and not adding back in closing cost, you will certainly save money with a refi.

It's not rocket science or voodo. It's basic interest. Which is a percent. So it makes sense while the principal balance is higher, you pay more interest in terms of dollars. But from the first payment to the last payment, the interest is the exact same percentage of the principal.

So a bogus example.

Exactly.

You beat me to it, but I was working up a specific example.

Suppose that the original loan is for $100,000 with 7% annual interest for 240 months. The monthly payment is $775.30, and at the end of 10 years the principal balance is $66,773.67. Suppose you refinance that balance at 5% for 10 years. The monthly payment is $708.24. I am ignoring any transaction costs (appraisal, closing costs, etc.).

Steve

 

[mile9c1]

I've never heard of a loan that had "front loaded" interest. I've heard of people accidentally pre-paying interest when trying to pay down principal (doh).

 

[buckeyefarmer]

Not really front loaded interest, but simply how interest works. Interest is calculated based on the principal, which is obviously highest at the beginning, so more (most) of your payment at the beginning of a loan is interest. That's why its important to pay down principal early if you can.
I paid extra principal on my mortgage for sevaral yrs, then refi'd to a 15 yr mortgage at even lower rate, then kept my previous payment amount and paid off my mortgage early, saving a lot in interest over my original mortgage.

 

[LD1]

I can see why people think interest is front loaded. Because from a dollar standpoint, it is. But it certainly isn't some conspiracy against the borrower or anything. Like you said, just how interest works.

Exactly.

You beat me to it, but I was working up a specific example.

Suppose that the original loan is for $100,000 with 7% annual interest for 240 months. The monthly payment is $775.30, and at the end of 10 years the principal balance is $66,773.67. Suppose you refinance that balance at 5% for 10 years. The monthly payment is $708.24. I am ignoring any transaction costs (appraisal, closing costs, etc.).

Steve

On my phone, so it was hard to figure up a specific example.

I "think" what fishheadbob was trying to get at is that depending on all the factors, sometimes a lower interest can work against you.

If the principal is lower (later in the loans life), and the change in interest isn't huge, like a quarter or half of a percent, the potential refi fees and closing may exceed the savings of the lesser interest rate.

I had this exact same discussion with a pushy mortgage broker back when I actually had a mortgage.

I don't remember the specifics, but I had around 10 years left to pay on the 15 year loan, and got one of them refi offers in the mail guaranteeing they can save me money by lowering my interest. Which they were offering 1/2 or 3/4% less than I was currently fixed at.

All figured, they could save me about $20 a month. Over 10 years (120 payments) that would have been about $2400. But would have cost me $3000 or so do process the refi.

Then they offered me a 15 year loan at the same interest (again something like 3/4% less than I was currently at) and could roll the $3000 back into the loan and really save me a ton of money. Something like $100 a month. (Don't remember the exact). I told him he was full of bull, and asked what my payment would be.

The number he gave me times the 180 payments to be made was several thousand MORE than my current x 120 remaining payments.

He was baffled why anyone would want to pay "such a high interest rate" when they could give me such a low rate.

Wonder how many people actually fall for that crap without actually putting pen to paper?

 

[buckeyefarmer]

Yep, good point, sometimes it don't pay to refi, especially near the end.

 

[ovrszd]

I believe (and I don't know all the details) if you finance thru the dealership and immediately refinance the dealership may lose any incentive they received for the financing.
In my case I received an additional rebate for financing thru the manufacturer. I knew my salesman and he asked me to make a couple of payments before refinancing because otherwise the dealership would be charged back for the incentive I received.
We don't need to hash out the pros or cons of this again, just explaining what I think they meant about being courteous to your dealer.

Yep....

 

[ovrszd]

I had a similar experience. I had negotiated a cash sales price for a new 2007 Pilot when the sales lady informed me that I was eligible for a $500 rebate if I financed through Honda. After conversations with the finance manager and assuring myself that there was no prepayment penalty, I financed $5,000. I paid the loan off in about three months.

Steve

I see nothing wrong with that. In fact you were well served by her to inform you of this option. It did nothing to hurt the bottom line of her or the dealership.

 

[Steppenwolfe]

Uhmm.... Now I'm curious..

Show of hands: Do some people think it's bad form to pay off your loans early? A stab in the back to the financier?

It has NEVER occurred to me that if I owe somebody money and pay it off early that somehow this is an offense.

They've got their money and can now invest it and make what they would of earned in interest. Or they can loan it out again.
Or they can roll around in it in a big pile on their bed. Whatever...

If they invest it they should be able to make as much money as the interest. Plus now they have the benefit of being in possession of the principle / security.

Plus if you pay them off with future dollars (i.e over the life span of the loan), you're paying them off with dollars that are worth less than paying them off with today's dollars. (i.e. due to inflation). So there's a benefit to them.

Interested in what others think..

No, you're right. Ovrszd is over reacting a bit, my :2cents:.

 

[ovrszd]

No, you're right. Ovrszd is over reacting a bit, my :2cents:.

Just stating my position. I thought that's what this discussion was about?

So,,,, you are right and I'm wrong??

We've drifted so far from the original intent of this thread that the OP has gone home.

No one is going to run out tomorrow and change their way of doing business.

If I'm over reacting then every poster here is. Including you.

 

[hystyk24]

It's irrelevant. Unless they offer a cash price or you can eliminate the use of credit cards by everyone so that fee goes away. So in the end he pays less that you cash people. (If he pays it off immediately like he says does.)

I also use my card for everything because of miles or cash back... Also haven't paid an interest charge in a decade. Looking for that zero turn mower and came across mowersdirect.com. Not that I'm hyping them, but they offer 2% reduction for those paying by check. Found a new 2016 leftover Bad Boy mower in Sarasota today. Dealer took $400 off an already fantastic price because I was not financing and then knocked off another 2.5% for not using a credit card. To make your point, when the advantage of paying up presents itself... Kubotas' loss is my gain... and still orange �� ...

 

[ultrarunner]

You know an honest car salesman?

Yes... my Grandfather in the business for 50 years.

When he passed away the funeral was standing room only and the newspaper ran with a story Beloved Car Dealer Succumbs to Cancer.

All these years later people will recognize my name and ask if I'm related.

Back in High School... I placed a lot of cars to friends and teachers... and never a bad word...

Some of my friends were a little unhappy at the time because they were looking to spend every dime on a new high hp car and my grandfather would have the grandfather talk in the office saying getting tied down with car payments to the point you live only to afford your car note is a common mistake...

He never wanted anyone upside down in their purchase... advertising was by word of mouth and repeat business.... some had 4 generations buying and trading cars.

Local mechanics would refer customers and never a kick back expected or accepted...

One thing my Grandfather never did was buy any vehicle from an auction.. simply would not do it.

Learned a lot from him and often didn't realize it at the time just how special he was... 50+ years in the business with a stellar reputation is remarkable.

Treat people fairly and put your home phone number and address on your business card... I asked him about this once and he said it was about buying with confidence... venture to say that even back then not many Dealers put their "Residence" phone and address on their business cards.

 

[paulfun9]

When i bought my last car, it was actually less to finance than if i had paid cash.

I haven't encountered the situation when I could do a major purchase with credit on something like a Car/Truck/motorcycle or even a tractor that I would pay less by using any type of finance compared to cash. Not saying it isn't possible but so far I have been able to save more by paying cash with every single major purchase since 1992 right up to my latest purchase last week of a new Boat.
This has me wondering if more people are just accepting the prices offered without question and not walking if the deal isn't sweet enough.

As many other folks have realized with some stores you don't win when you pay cash. most of those stores I don't shop often but will not hesitate to use a credit card that gives me something worth while in a point system but the bill is paid in full every month. Most of the stores I shop frequently give a cash discount and some don't even accept credit cards at all so there is no mark up for them to begin with.

Like many who understand the mark up but would rather pay cash. I would prefer we not have to deal with it at all but since we do I will play the game when need be and do the best I can for my pocket.

Those who honestly think that people will not pay for something that does not equal in value to the cost are not paying attention IMHO as I honestly think people are confusing wants and needs and paying way too much for many things just because some other fool is paying that much.
Remember that question when you did something questionable as a child "If all your friends stuck their hand in s--- would you?" My answer was always no and still is.

 

[ovrszd]

I also use my card for everything because of miles or cash back... Also haven't paid an interest charge in a decade. Looking for that zero turn mower and came across mowersdirect.com. Not that I'm hyping them, but they offer 2% reduction for those paying by check. Found a new 2016 leftover Bad Boy mower in Sarasota today. Dealer took $400 off an already fantastic price because I was not financing and then knocked off another 2.5% for not using a credit card. To make your point, when the advantage of paying up presents itself... Kubotas' loss is my gain... and still orange �� ...
View attachment 515951

Good stuff. Did you inquire about cash discount or did the dealers offer that information?

 

[ovrszd]

I haven't encountered the situation when I could do a major purchase with credit on something like a Car/Truck/motorcycle or even a tractor that I would pay less by using any type of finance compared to cash. Not saying it isn't possible but so far I have been able to save more by paying cash with every single major purchase since 1992 right up to my latest purchase last week of a new Boat.
This has me wondering if more people are just accepting the prices offered without question and not walking if the deal isn't sweet enough.

As many other folks have realized with some stores you don't win when you pay cash. most of those stores I don't shop often but will not hesitate to use a credit card that gives me something worth while in a point system but the bill is paid in full every month. Most of the stores I shop frequently give a cash discount and some don't even accept credit cards at all so there is no mark up for them to begin with.

Like many who understand the mark up but would rather pay cash. I would prefer we not have to deal with it at all but since we do I will play the game when need be and do the best I can for my pocket.

Those who honestly think that people will not pay for something that does not equal in value to the cost are not paying attention IMHO as I honestly think people are confusing wants and needs and paying way too much for many things just because some other fool is paying that much.
Remember that question when you did something questionable as a child "If all your friends stuck their hand in s--- would you?" My answer was always no and still is.

Enjoyable read. Defines the current society well.

 

[hystyk24]

Good stuff. Did you inquire about cash discount or did the dealers offer that information?

A slight prompt whether he could do any better on the already discounted price. He asked me if I was financing and then if I was willing to write a check rather then use CC. Told me they had the machine there for 11 months and would give me a bottom line number. It was already marked at $4500, down from the 2017's $5200. He returned with a price of $4100 or $4000 if I wrote a check... Perfect example of a dealer offering cash incentive over financing, but remember they are not making money on the 0% financing other then a $50 fee and maybe these forced insurance policies... Decision to use the CC or cash is a simple financial decision. That 4K CC transaction translates to an $80 benefit to me if redeemed for a travel expence or $40 if I redeem it for cash.

 

[Steppenwolfe]

Just stating my position. I thought that's what this discussion was about?

So,,,, you are right and I'm wrong??

We've drifted so far from the original intent of this thread that the OP has gone home.

No one is going to run out tomorrow and change their way of doing business.

If I'm over reacting then every poster here is. Including you.

Ok... I was referring to what you said about being honest. Getting cash back, paying off a loan early, or getting the best deal isn't being dishonest. Maybe I read more into it than was there....

 

[ovrszd]

Ok... I was referring to what you said about being honest. Getting cash back, paying off a loan early, or getting the best deal isn't being dishonest. Maybe I read more into it than was there....

I think actually you didn't read in detail the post I replied to.