Dashboard Dangers 4: How to Buy your Dream Car for $1 per Month Guaranteed!!!!
How to Buy your Dream Car for $1 per Month Guaranteed!!!!
Image Source: https://www.caranddriver.com/ferrari
In case you haven't read the other posts in this series, I highly recommend you do so before you continue reading this post:
Ferrari California T
The Ferrari California T retails at $206,473. In this post, I will show you how to buy it for $1 per month!
What's the catch?
In case you haven't realized by now, I will show you a legitimate way to purchase your dream car; however, in the process you will realize that you made certain assumptions on what the actual cost will be.
Unfortunately, most car buyers price a car in terms of monthly payments and ignore the total price of the car. The reason for this is we all have a monthly budget in mind for how much we can spend. We look at monthly costs of everything because the numbers are easier to figure out in our minds. However, when we do this, we lose sight of the bigger picture...total cost. I told you that you will get your dream car for $1 per month, but in reading the headline, you made several assumptions, you forgot about the other drivers (pun intended) that go into a car purchase.
The Drivers (pun intended)
No dealership will hand over your dream car for an insignificant amount of money. They'll want the full MSRP, or as close to it as possible. So, how do they do this? They manipulate the other variables in the equation.
One way to maintain a given monthly payment is to manipulate the time horizon. If you want a car at a lower monthly price, you can finance it over a longer period of time to reduce your monthly payment.
I told you that you would pay $1 per month but did not specify the time horizon. In this case, if you wanted to pay $1 per month, you would be paying for over 17,000 years. I'm sure you wouldn't mind willing $1 a month payments down to your great great great great.......great grandchildren so that you can have your dream car today, but I'm sure the dealership would mind, so let's explore other options.
Another way to maintain a monthly budget is to add a down payment to the sale. In this case, we can determine the down payment based on the monthly payment and desired time horizon for financing.
Again, I only promised $1 monthly payments, I did not promise a $0 down payment! The moral of the story is that numbers can say or mean anything depending on our assumptions. Obviously, the title was a hook to get you to read this article, but there is a real world application to this concept.
Real world example
Let's say we tell our salesperson that we want to pay $150 per month for a car that's priced at $250 per month. They are not going to discount the car by almost half, I can tell you that much. However, the salesperson tells you he/she can get you to your desired monthly payment. You sign on the dotted line and don't even care about how he/she got there. However, the truth is the salesperson manipulated your financing terms and now your vehicle is financed over 5 years instead of 3. And guess what, that 5 year financing comes with a 4% APR instead of the 0% APR that the 3 year term comes with. Without realizing it, you've paid a higher total price for the car, even though the monthly price works out to your magic number. Good luck when you are trying to get a new car in 3 years and realize that you have 2 more years to make payments on your current car!
Let's take the same scenario only we are insistent on the 0% APR deal for 3 years. We tell our salesperson that we will not even consider any financing that comes with an interest rate. Our salesperson tells us he/she has the answer and we can get the price to $150 per month without changing the financing term. Hallelujah! We won! We agree right away before the salesperson realizes...then we are asked to write a check for $5,000 before we leave because that is the down payment..... oh no!
Remember, the salesperson is commission-based and is incentivized to make a sale at the highest possible price, regardless of whether it is in your best interest.
Hopefully, by now you are seeing the pitfalls we have when looking at data one way. Always remember to review your assumptions and look at the full picture...Most of all, DO NOT INSTANTLY TRUST THE DATA
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