Long vs. Short Term Financing

[aztex]

Hi, 

I figure this a question that arises in anyone who finances an RV. 

If I follow though on my current plan I want to finance for 20 years BUT can afford to and planning to pay off in 6 years or less. 

The 20 year plan are payments I can make in my sleep; would have NO impact on my CURRENT situation. I like the security of not having to stress BUT still strive to pay off in 1/3 the time. The 72 month plan still fits in a reasonable budget being ~10% of my take home and still below my "play money" allotment! The 72 month plan would work because I'll no longer be collecting guitars and gear and books and other "toys" I indulge in. A lifestyle switch would mean no impact on current monthly bottom line.

Since my APR is rock bottom 4.25% choosing an actual payment plan of 72 months doesn't save me any more compared to a 20 year paid off faster. 

Having a small payment is kind of an insurance policy if something goes sideways or I want to take off the summer and not work as hard.. 

But this seems so simple it seems everyone would do this! IF I REALLY intend to pay triple payment per month and follow though...are there any pitfalls I am not aware of? I'll check to see what penalty if paid off sooner but a previous 5.75% apr quote said no penalty.

Thanks!

[Wkjordan2]

This is how we purchase many things if the interest rate is fixed and acceptable. I have had the ability to pay cash but it would deplete my cash investments.   As long as the money you have that you would have paid cash with doesn't "go away" , and is secure and possibly making more interest , its not much different than paying cash up front.   The risk is in what you consider "secure".  I would insure that the loan can be paid back at any time without penalty. I have bought several cars this way as the best price almost always is if I financed with them ( and yes the rates were at least competitive , cash is no longer king) I take their deal, I am sure with a bank discount or kickback to them,  then within a month pay the loan off (at no penalty)  or refinance with my cu for a slightly better interest rate at no cost. 

The reason this may not work is Many( most)  People are not good at keeping the "cash"available to pay off the loan .... they buy something then forget that money was spent and use that cash for something else or Lose the money in a bad investment. Things then go sideways.  

Edited March 7, 2020 by Wkjordan2

[filthy-beast]

20 years on a 500k Newmar or Tiffen sure. 20 years on a lower end TT that will fall apart long before then not so much.

[GlennWest]

As long as bank or cc you use allow you to pay extra toward the principle, go for it. Mine does, and I use it. We always get loan with an easy payment and pay extra. 

[Kirk W]

I not only agree with how you are thinking, but I have done that many times over the years. As you mention, make sure that there isn't any penalty for early payoff and I would also verify the manner that they handle extra payments or over sized payments. My spouse was a loan officer for a bank but so long ago that much has changed now and so too have the rules. One thing that I do suggest to anyone before they sign a loan is to ask for a copy of the contract that you will be asked to sign that you can take home to read carefully, several days before you close on the loan. Lenders use a standardized contract so it is very easy for them to supply one that is blank of just faked to allow you the time to read every word of the contract and make sure that you understand exactly what it means. I began doing that after I had a lender get very angry with me for insisting upon reading each word of a 3 page loan contract, some 40 years ago. More than once I have found something in the contract that I either didn't understand or objected to. 

[Poohbear]

19 hours ago, GlennWest said:

As long as bank or cc you use allow you to pay extra toward the principle, go for it. Mine does, and I use it. We always get loan with an easy payment and pay extra. 

Allways ask if it's an " on or before " type loan. We were looking at a new 5er and thought about using the dealers financing as the price was actually lower that way. The gotcha was the payoff penalty if payed off in first year. Worked out same as cash price which I think cash should be cheaper.

we bought a new car in Dec. and financed thru our CU even tho on paper higher interest than dealer. Our CU has payed back a substantial amount of interest to members each year so the true cost of the loan is cheaper. The loan is probably going to go as it just bugs me to owe money.

 

[rickeieio]

Agreed.  I know I'm not normal, but I don't like debt, unless it's making me money. Besides, at my age, I shouldn't need to borrow.   My last two pick-ups, I financed through the dealer to qualify for a nice rebate.  After 90 days, I paid them off.  Had I paid them off earlier, the dealer would have had to eat the rebate, and since my son-in-law works there, I didn't want to ruin my chances of getting a good deal next time.

Do the math.  Usually, 0% financing is not so great if you figure the rebates you may be passing up.  In the end, cash IS king, if you do your homework. YMMV. 

[rpsinc]

I was able to buy my last truck on 0%APR, with a $1500 rebate, a $2500 discount and a new Class 4 hitch included at no cost to me.  It was a '16 which I bought in '17.  The truck had been ordered for someone else and the deal fell through, it was close to what I was looking for so made the deal.  Also, the 3rd truck I bought from same dealer.  3 year later, it has been a good fit.  Although I was planning on using cash, when this came up, and esp because it is a work truck, which I expense the monthly payments, it was the right thing at the right time.  Doesnt happen very often though.  Which is why finance companies are plentiful and seem to do very well.

[rickeieio]

Yep.  S-I-L is finance mgr. for a pretty big dealer.  Too get the rebate for taking mfr. finance, you likely have to ask.