Wednesday, May 24, 2017

Financing Fire Apparatus: Money Saving Idea #5a

If you finance a fire truck, you'll spend between 10% and 50% of the truck price on financing cost.

What can you do to make sure you're not wasting any money unnecessarily?
 

Knowing the interest rate options can cost you...or save you

You'll see different options from different banks.  What should you know and how should you choose?

Fixed Rate vs. Variable Rate:  Banks will offer lower variable rates and higher fixed rates.  The reason is that the bank is putting the risk of future interest rate changes onto your shoulders.  If you guess wrong, the cost of borrowing will increase.  My advice:  Leave the interest rate risk to the professionals and choose the fixed rate option.

Rate resets:  This is another version of the variable rate.  The rate is fixed for a period and then resets at the future rate.  Again, when you choose a rate reset, your cost may increase and change what you think you are paying for borrowing.

Summary

You can not calculate the cost of borrowing when you agree to future changes in the interest rate.  By not knowing, you can waste money.


Stay safe!
John R. Hill
President
First Bankers

Wednesday, May 17, 2017

Financing Fire Apparatus: Money Saving Idea #4

If you finance a fire truck, you'll spend between 10% and 50% of the truck price on financing cost.

What can you do to make sure you're not wasting any money unnecessarily?

This is the simplest, easiest, big saving idea out there

It all begins with avoiding a mistake.  When I am asked to provide a financing proposal, the callers all (nearly 99%) ask for payments in 1 year.  Or 1 year from truck delivery.  Or on delivery.

The point is that they all base the timing of their payment on the truck.

But smart borrowers know to base their payment on when they receive their money, not the truck.  So, if you receive your money in, say, August, schedule your payments in August, not 1 year after the truck delivers. 

Otherwise, you are paying for interest while you have your money in your account. And you never earn enough to offset what you are paying for loan interest.

This simple change saves over $6,000 on the typical truck.  And, since the typical borrower pays almost $50,000 in interest, this small idea is like getting a 11% discount on your fire truck financing.

Summary

Timing of the payment during your budget year is important and provides big savings for a small tweak.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, May 10, 2017

Financing Fire Apparatus: Money Saving Idea #3

If you finance a fire truck, you'll spend between 10% and 50% of the truck price on financing cost.

What can you do to make sure you're not wasting any money unnecessarily?

This idea is kinda a twofer

It not only saves money but can ease stress about your payment.

The idea is to select the right frequency.  That means selecting how often you will pay the payment, such as monthly annually, quarterly, etc,

There is an old wives tale that monthly payments always save money. That is true for mortgages or cars but doesn't work for fire trucks.  The reason is that you can select when you begin payment payments.  So, it's possible to pay monthly payments and pay more interest. It's not cut and dried and you have to find the right decision for your situation.

Also, the other benefit in choosing wisely is that you time your payments with when you receive your money.  If you only get most of your money once a year, there will be months when a payment will be tight if you have monthly payments.  If you get your money monthly, you must be disciplined to save up for the annual payment.

Summary

Choosing the right payment frequency is important.  It will not only save money but make your budgeting much easier.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, May 3, 2017

Financing Fire Apparatus: Money Saving Idea #2

If you finance a fire truck, you'll spend between 10% and 50% of the truck price on financing cost.

What can you do to make sure you're not wasting any money unnecessarily?

The second large money saving idea is to choose the right number

I always hear 1 of 2 questions:
  1. What is the longest time we can finance the fire truck, or
  2. What is the rate for X amount of years.
The problem with both of these questions is that the time has been set without understanding the effect on the cost of borrowing.  Both questions are trying to get to a payment amount - whether the smallest possible payment (the "longest time" question) or an estimated payment amount (the "X number of years" question).

Callers never ask how paying off 1 year earlier will impact the payment and the total cost of borrowing.  Or any number of other ways to shorten the repayment term.

Just like last week where "money is money", this week's lesson is that "time is money".

Summary

Time IS money.  When you look at slightly different payment plans, you can save a lot of money.  Much more money than even a lower interest rate.

Stay safe!
John R. Hill
President
First Bankers