QoD: Every 12 months that a car loan is extended costs an owner about __________ in extra finance charges.

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Jan 06, 2020
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Purchase Decisions, Question of the Day, Compound Interest

Answer: $1,000

Questions:

  • Which would you prefer: a 4 year car loan with $400/monthly payment or a 6 year loan with $300/monthly payment? Why?  
  • Why do you think that most car buyers focus on the monthly payment instead of the overall interest cost when they take out an auto loan? 
  • Complete these sentences:
    • The longer the term of an auto loan, the higher/lower (circle one) the interest cost (assuming it's not a 0% APR loan).
    • The longer/shorter (circle one) the term of an auto loan, the lower the interest cost paid by the car buyer (assuming it’s not a 0% APR loan).

Here's the ready-to-go slides for this Question of the Day that you can use in your classroom.

Behind the numbers (AAA): 

Long-term loans offer lower monthly car payments, but they ultimately cost the consumer more. AAA found that, on average, every 12 months added to the life of a loan adds nearly $1,000 in total finance charges.

“Smaller monthly payments may be tempting to potential buyers, but they can add big costs in the long run,” Nielsen said.

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In this NGPF Arcade Game, Shady Sam, students play the role of loan shark and learn how low monthly payments can can be used disguise loans with high interest costs. 

 

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.