One example of an annuity is your mortgage; you make a regular payment for a fixed number of years at a fixed rate. When it comes to mortgages, one of the reasons why so many people got in financial trouble when the housing market collapsed was because they had over-levered themselves. There were several reasons for that and rolling credit card and car debt into their mortgages was one of the most common missteps.
For example, most people mistakenly think that if they owe $10,000 on a credit card at 20% and roll that into a new 30 year mortgage at 4.5%, they are saving money because they are saving over 15% a year in interest. That is only true if it takes 29 ½ years to pay off that credit card. Let’s say they pay the credit card over a period of 5 years at 20%, they will end up paying 158% of the original total ($15,896); however, if they add the balance to their mortgage at 4.5%, they will end up paying 182% of the original amount ($18,241).
Explore one of the many common misconceptions about how debt works either for an individual personally or in business and describe ways that it could be avoided. You can discuss any aspect of leverage including: how people use debt, the tax deductions for debt, the loan process, application of debt, 0 % financing, etc.
Post by classmate
I decided to dive a little deeper into the 0% auto financing. The last module we had some good discussions about the hidden fees so I wanted to dig a little deeper into this aspect of financing. As I look through multiple car manufacturers to see what they have listed in reference to the 0% catch. One of the first thing I noticed was that all of the deals were specific to new vehicles and some of them were geared at specific trim levels of those vehicles. Ford specifically stated that you must put down $3,700 and you must qualify for Ford Credit Financing (Ford, 2021). After looking through all of the F-150 offers the down payment requirement continued to rise depending on the trip level. These limits are there to help limit those individuals that can actually qualify for such a low interest rate. Previously while I was looking at these trucks I also noticed that they were offering a 0% for 48 months. I have noticed that depending on the supply and demand or the stock level of the trucks will help determine what the dealerships will offer in reference to low interest rates. New vehicles also start arriving at the dealerships this time of the year so some dealerships are looking to off load their vehicles to make room for new stock. As I look through some other lending websites they discussed some of the hidden costs or catches to 0% financing. Lending tree talks about how very few individuals will actually qualify as you need the best credit score to get approved for this rate. They continue to talk about the bait and switch since the 0% got the customer in the door. Once they get on site they will either not qualify or the qualified vehicles won’t be on site. Dealerships will add additional fees or they will sell you the extended warranty, GAP, or maintenance schedules. These items make the dealership as much money if not more that the profit on the vehicles (Jones & Williams, 2021). In the end I believe everyone needs to be educated on what to look for in these loan options. Make sure you take the time to do your research so you are not surprised when the vehicle you want isn’t on the lot when you get there. The other thing you need to do if you are looking at a loan is to get pre-approved and run multiple different sets of numbers so you are able to make an educated decision on what you are getting yourself into.
Ford. (2021). 2021 F-150 Pricing and Incentives. Retrieved from Ford: https://www.ford.com/trucks/f150/pricing-and-incentives
Jones, J., & Williams, A. (2021, June 30). 0% APR Car Deals in 2021: Wat’s the Catch? Retrieved from lending tree: https://www.lendingtree.com/auto/0-apr-car-deals/