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This column is an excerpt
from my best-selling book,
Credit Card and Debt Management
(ISBN 0964840197). It's the beginning of Chapter 5: Math and Money. Enjoy!
I want to begin this chapter with a personal story. My father
asked me to help him pick out a new car. After visiting several new car dealers in the
area, we finally found one with a car that had the price and features we were looking for.
Once the negotiations were complete, and the price was agreed upon, it was time for the
dealership to add in those extras such as; tags, processing fees and anything else they
could.
Finally, the balance due for the car was presented and we
decided to finance it. The salesman told me the length of the loan and the interest rate.
I already knew the amount to be financed so it was easy to calculate the monthly payments.
It was at this time that we were instructed to go into a separate office to read and sign
the loan agreement.
When the contract came out of the computer the monthly
payment shown was $65 a month higher than I had calculated! That $65 per month for entire
length of the 5-year loan would total $3,900! I expressed my concern and was told that,
"you can't figure out monthly payments with a simple calculator" and "the
computer is right." I informed the salesman that unless the payments were what I
computed, the deal was off and I would be visiting the dealer across the street who would
be happy to have my business. Furthermore, I was using a scientific calculator which can
easily handle simple monthly payment problems.
Once they saw I was serious, it was explained that the
computer "accidentally" added a charge on for an extended warranty and
undercoating. They adjusted for this error that they "obviously had no idea
occurred," and told me the new payment. This time it was closer, but still off by $10
a month. This might not seem like much money but $10 a month for 60 months is $600 and I
would rather keep the $600 than contribute it to the next dealership rob-the-customer-day
party. I told them again that they were wrong and I was not going to allow my father to
sign any agreement until the numbers were correct!
 After searching, they finally "discovered" what
went wrong. Another computer blip that they had no control over. It turned out that the
interest rate on the agreement was not the one they originally quoted me. Once all the
numbers were correct the computer spit out the correct monthly payment and we got the car.
I am not trying to imply the dealership tried to rip me off.
Oh, no! But what is certainly true is that if I did not know how much the payment was
supposed to be, my father might have signed that agreement and paid a huge unnecessary
fee.
Since then I have helped many of my friends buy cars. In each
case, the starting monthly payment was always higher than I calculated and later reduced
to the correct number. These are real examples of the necessity of being able to solve
simple math problems.
This is the most important chapter in the book. It is
essential to know how to calculate, in advance, all the terms of a loan. You need this
information to compare different credit agreements and determine which is best for your
unique situation.
--End--
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