In January, I shared why we chose to finance our new (used) car. To those who know us, they would think paying interest would be an immediate no, but there are reasons that it may work in our favor. We also have a mentality that the best decision is the one that makes our money work the hardest, not an overarching thought that debt is bad.
The dealership was offering $1000 off the purchase if we financed. Mr. ODA ran the numbers, and we decided that was worth paying the minimum 4 months of interest. I paid off the loan, so now we have the actual numbers.
Here’s what I had said back in January:
The financing was 6.99% and we chose the option that allowed pay off after 4 payments. There was an origination fee of $175, which is rolled into the principle. Our payment is $151.94. The first 4 payments hold $175.07 worth of interest. So we will pay $175.07 of interest and the $175 origination fee as a means of taking $1,000 off the list price. That nets us, including the $30 of credit card rewards, $679.96 less on the list price. After the 4th payment is made in May, we’ll make a lump sum payment of about $7,134 to pay off the loan.
I did not read any prepayment penalty data, but Mr. ODA wasn’t so sure. We made a lump sum payment to bring the balance down to about $2500 in February. What I wasn’t prepared for was that the loan system decided that I didn’t owe any monthly payments for several years at that point. I decided to just go ahead and make my monthly payment a couple more times after that even though it was being applied as principle only and not a monthly payment.
We paid $175 origination fee and $112.49 in interest. So our net save on the final purchase was $712.51. I also included the fact that we made $30 by only financing the bare minimum and putting the rest on a credit card that got us 2% (there was no fee from the dealership to put this on the credit card, which was also a factor in the decision), bringing the net to $742.51 worth of the $1000 off the purchase price. This was better than projection because of the way their loan system applied our lump sum payment.
One Dollar Allowance 