Sunday, January 7, 2007

Does Only The Size of Monthly Payments Matters?

I have noticed a lot of Americans pay more attention to the monthly payments of something rather than to its total cost. Take for example, buying a car. A lot of people I have talked with think its a deal when they can pay lower monthly payments in exchange for a longer loan. Car salesmen use this to their advantage all the time. One of the first things they may ask you is, how big of monthly payments can you afford? They then steer you to an upgraded model along with a longer loan, but with lower monthly payments. To me, that tactic working as often as it does is just ludicrous. While their monthly payments are indeed lower, they end up paying more in the long run. Most people do not even think of running the numbers and when they are told that they should, they usually don't. Sigh, for the ignorant, ignorance is bliss.

And what of all those people who took out adjustable rate mortgages (many for those lower initial payments) when fixed rate mortgages were much more prudent, especially with interest rates being near historic lows. Many of them will not be able to stay ignorant for long though. Once they receive their wake up calls and their rates start adjusting, hopefully they will realize the error in their ways.

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