Question

2. A used car is priced at $2,695. If you borrow the money for the car, your payments will be $122 a month for 30 months. How much will you save by paying cash?

Answer 1

If you borrow the money, your total payments will be

(30) times ($122) = $3,660

If you pay cash, the car will cost you less than that.

How much less $

(3,660) minus (2,695) = $965 less.

If you decide to make payments for the next 2-1/2 years,

you'll pay $965 for the privilege of not paying yet.

And, if the car dies during that 2-1/2 years, and you totally

junk it, you'll still have to keep making the payments.

In the loan business, this is called "paying for a dead horse".

Borrowing money and making payments is always a bad deal.

If you can possibly pay cash for what you want, then pay cash.

I would even go farther than that, and say something that will

shock you:

==> If it's food, clothing, transportation, or a place to live, then

you need to go ahead and borrow to pay for it.

==> If it's NOT one of those things and you can't pay cash for it now,

then you can get along just fine without it, and that's exactly what

you should do until you can buy it for cash.

Answer 2

This is always a useful question. It's good to know.

Step One

How much do you pay over time if you use 30 months and pay 122 / month.

Total = 122 * 30

Total = 3660

Step Two

how much is that above the case price.

3660 - 2695 = 965

You have paid 965 more using payments than you would have if you'd just paid cash. This calculation should always be done before you buy something on time.