Here is the best way to get a new car and consolidate your debt at the same time. This technique is a great way to kill two birds with one stone!
On average credit card companies charge 19% interest on an unpaid monthly balance By contrast some new car manufacturers offer promotional finance rates as low as 0%. Your average used car rate will be a bit higher but many Certified Pre Owned programs offer very competitive financing.
So how can a new car loan help get you out of credit card debt? When making a new or used vehicle purchase the purchaser can ask the lender to borrow more than the value of the car. Most auto financing will allow for an additional 10% to be added to the price of the car.
Why would financial institutions offer this? Often people may owe more on their trade-ins than the value of the car. Once ready to make a trade-in, the owner may find themself in a financial position known as negative equity, which will be carried forward to their new car purchase.
Here is a hypothetical example:
Client X is trading in his Honda Civic for a BMW 3 Series. The BMW is $40,000
Client X owes $12,000 on the remainder of their loan. Due to the age and condition of the Civic, the dealer is only willing to pay $8000. The $4000 shortfall or negative equity will be applied to the new vehicle sale, essentially raising the price of the BMW from $40,000 to $44,000.
Let us look at how this can be used to your advantage, given the following hypothetical situation;
Client Y has $3000 of credit card debt.. The minimum payment is $100 a month. If the client can only pay the $100 they will accrue 19% interest on $2900 which would be an additional $551. Instead of making minimum payments and watching the interest charges accumulate, Client Y can purchase a new or used car and get a check with the car.
Client Y is going to buy a brand new Hyundai Elantra for $30,000. The interest rate is 0% for 72 months and the monthly payment is $416.67. Client Y can ask the dealer to charge them $33,000 for the same car. The dealer would provide Client Y with a check for $3000 that they can use to pay off their credit card balance. The additional $3000 would be ammortize to the price of the car bringing the total selling price up to $33,000 and the payments would jump to $458.
For a small surcharge Client Y gets a new car and the money to pay off their credit card. Client Y sees an increase in the monthly payments of only $40 and now they can be free of debt credit! He’s saving thousands of dollars in interest payments all while driving a brand new car.
Do you have debt but need to get a new vehicle? Autos Consultants can help you with a solid vehicle and financing recommendations for your next purchase. Not sure if you should lease or finance? Check out this article to see what the best financing method is for you!
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