A young man (18-22) recently told me about his truck purchase.. see if you can find the lesson in his words.
He writes:
“ive been looking for a new truck… had my eyes on an 05 ram 1500 4 door short bed 111,000 miles chrome wheels SLT with a hemi for 15,000 worth like 18,000 and no one would finance me cuz ive been at my job 2 months and have 0 credit. but this new finance guy at <dealership> ran me through <bank> and they actually financed me for this car! its 21%… but still they did it lmao (laughing my ass off). no clue why cuz ive been workin for 2 months and have no credit at all. tell the finance guy at ur dealership to try to get u a loan through <bank>”
Now.. he’s actually telling another young person where to get their new car purchased and what bank to use… but do you hear the hidden message?
He’s basically saying, “I have NO CLUE why anyone would finance me!!”, and he’s HAPPY he’s got the truck he wanted.
Now I don’t like bursting bubbles for fun. But in this case I felt it was necessary. This was my reply to him:
“<name>,
I’ve done some quick calculations.. better sit down.
If you financed $15000 at 21% for 60 months… you will pay $24,350 (with 9,350 being interest) and your payment is around $406.00 per month.
or if you opted for a 72 month loan… you will pay $26,500 (with 11,500 being interest) and your payment is around $368 per month.
Now..your truck may be worth $18,000 today.. but what is it going to be worth 5 or 6 years from now? I’ll assume that it’ll lose 1/2 of it’s value in those years.
So on month 60 or month 72 when you finally pay your 24,000th dollar or your 26,000th dollar.. you’ll be relieved that you’ve paid off your $9000 truck.
It’s very sad, but very true.. you thought you saved $3,000, but you are going to pay $9,000-$11,500 in interest because they let you take the truck home today.
In contrast.. if you had saved up your truck payments in advance..(about $400 a month) for about 32 months.. you’d have about $13000 in CASH. Then you could have walked into the dealership and you could have said “I want that $18,000 truck, and I have $13,000 cash. You can sell it to me now, or I can walk across the street and buy another truck from the dealership over there.” Then they would have stumbled over each other to get their commission because they would NOT have let you walk out the door. They DO NOT let real cash walk away. After you bought the truck cash.. YOU’D HAVE NO PAYMENTS.. you would then get to spend your $400/month on something else…
I’m afraid, as said before. You got jacked.
But it doesn’t have to end badly for you. Maybe you don’t see this as a mistake just yet (because the euphoria hasn’t worn off). But this could just be the biggest blessing or opportunity you’ll have.
You DON’T have to pay ALL $9000 or $11,500 in interest. If you worked really hard at paying the truck off, you might be able to reduce that down to about $3000 or $4000. Maybe less if you worked REALLY REALLY hard.
Here’s how: Get a second job, and use EVERY PENNY of that 2nd paycheck and put it all towards your truck. 100% of that extra money goes to the principal of the loan (the part that interest is charged on). If you’re knocking down principal each and every month, there is quickly nothing left for them to charge you interest on. The only way to beat the dealerships at their own game is to pay MORE each month then they asked you to.
However.. I’d advise you to take the truck back. Lesson Learned…then start saving the money to buy a truck with CASH. But if you must have it… pay off that loan as FAST as possible…don’t borrow the money to do it… EARN IT. You can save yourself a good portion of the interest and be much better off then if you just make payments the way THEY want.
Reality hits HARD… and when it hits you… you’ll end up HATING the truck instead of LOVING it…
I guarantee if you work hard to pay it off, you’ll appreciate the truck a whole lot more.
If you want more accurate numbers please send me an email. I imagine that the actual amount financed is MORE than $15,000, am I right?
Good Luck sir!”
Let me know if you think I was too hard on him. What would YOU have said? Please comment below…
