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THE TRUTH ABOUT AUTO FINANCING
- When we take out a loan or participate in any financing program, we pay interest to someone else.
- When we pay cash for our purchases, we give up interest we could have earned.
Lost opportunity cost (LOC), in the auto finance example, represents financial charges on auto payments and the lost future growth on the money paid for financing charges or the future growth on your lump sum cash payments if you had left it in the account for growing.
For example, if you take $25,000 out of an investment account that earns an average of 8 percent a year, the opportunity cost is about $9,000 over four years. That's the interest your money would have otherwise earned if you had left it alone. The same $25,000 would grow to $543,113 in 40 years if you had left the money in your investment account. When you pay cash for the car, you lose the opportunity to have your money grow.
If you take out an auto loan, the major financing cost will be the interest expense and loan fees that you pay for the loan. You also pay up-front costs to the lender when you close a loan.
If you lease a car, the main difference from borrowing is that you don't own the car at the end of the lease term.
How do you pay for your cars?
- Leasing
- Bank loan, or
- Cash
Let’s assume the price of the car being purchased is $25,000 and that you will buy a new car every four years, for a total of 10 cars. The interest rate on car financing is 8%, and a savings account would yield 5% return.
Option one: Leasing |
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Option two: Bank Loan |
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Option three: Cash |
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With each of the first three traditional options of purchasing a car, you had the use of 10 cars; however, you are always LOSING money, as much as $429,396, which could be your additional retirement wealth. This counts only for your own car. The number could be significantly higher if you take all your family car needs into consideration!
What if you could pocket those payments and interest, how much better off would you be? What if you could repeat the same process for funding college, for taking advantage of business/investment opportunities, and for all of your other needs and big purchases, making all the profits the outside bank would have made on you, how much wealthier would you be?
Now you have the opportunity to learn how to use the alternative, Your Own Private Bank, turning your car payments and other payments into your own wealth.
With your own private banking system, you can use the money you are already spending to make yourself rich, provide a stable income over your whole lifetime, and build a generational family wealth.
Sign up for "Be Your Own Banker " introductory online seminar (FREE),