Are You Buying a Car? Consider This Tip
by Dianne Goodman
Nothing upsets me more than when I see someone being taken advantage of because they didn't understand finances and the salesman who takes advantage of them knows this. I have seen this with loan officers for financing of homes and car dealerships too many times. Unfortunately I find out about the deal after the client had already signed the papers or before they decide to contact their accountant for help. So I offer this information to you in hopes that you won't make this same mistake. Here's the story…..
Bob goes to Big3 Car Dealership and wants to buy a car. He picks out the car and then goes to the finance department to finalize the numbers. The finance department offers to save him 4 payments if he sets up a biweekly auto deduction from his checking account. This sounds like a pretty good idea to him since he does nothing and gets to reduce the total price paid for the car by 4 payments. But you will see in the finer details why this wasn't such a good idea.
Here's how it works. The biweekly payment comes out of your bank account biweekly and goes into an interest-free escrow account by a third-party payer. The third-party payer then writes a check once a month to the loan company. The fee that was paid to the third-party payer for this service out of these biweekly payments was $428.00. And if Bob realized what a bad deal this was and tried to cancel, he still had to pay the third-party payer the $428.00. The sad thing is that Bob's bank couldn't even tell him where the biweekly payments were going and the car loan company couldn't tell him what the check number, bank account or name of the company paying his car loan was.
Now if the finance department wanted to truly help Bob they could have suggested to him that he could have biweekly payments made directly to the loan company from his bank and had the payments applied immediately to the car loan balance rather than have the third-party payer make the payments once per month. This would have allowed him to reduce his interest on the loan since the payments are applied when deducted from his checking account biweekly and received immediately thereby prepaying the loan. This would have eliminated the third-party payer and saved him the $428.00 he paid to them for their fee. If he had done this, he would have reduced his payments on the loan by much more than the 4 payments that he was saving going through the third-party payer.
Another way you can save if your loan company won't apply the payment until its due is to set up a savings account with your bank. You can have the biweekly payments automatically withdrawn from your checking account and put into your savings account and then have the monthly payment automatically paid from your savings to the loan company. You reduce your payments by more than 4, you keep the $428.00 fee you would have paid to the third-party payer and you make the interest on the money when it is in your savings account.
The next time you finance your car and are asked if you want to do the biweekly payments to prepay your loan through a third-party payer, ask the finance department to help you set up the payments directly to the loan company or ask your bank to help you set up a savings account and have the payments made directly to the loan company from the savings account once per month. The fees for this should be minimal and very possibly free.
This is just one tip you should consider when buying a car. Go to http://www.dgoodmancpa.com/individuals.htm#FINANCEVEHICLE for more important tips when purchasing a vehicle. If you have a specific question about your particular situation, you can e-mail me at dianne@dgoodmancpa.com.
This article was intended to provide general information about buying a vehicle. It does not contain all the information needed to purchase a vehicle. If you have further questions, I can be reached at www.dgoodmancpa.com.
CONTACT INFORMATION:
Dianne Goodman, CPA
Comprehensive Small Business Solutions, PC
505 323-2307
1 888-851-1975 toll free
http://www.dgoodmancpa.com
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Buying a Car? - Consider This Tip by Dianne Goodman, visit http://www.dgoodmancpa.com for more content like this.
Dianne Goodman, CPA -Specializes in servicing Small Businesses and Individuals. Visit www.dgoodmancpa.com for relevant and current information on a variety of financial and tax issues focusing on small businesses and individuals or call at 1-888-851-1975.
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