Beware the monthly payment math trick
Posted
Jul 15 2008, 07:03 AM
by
Karen Datko
Rating:
This post comes from partner blog Blueprint for Financial Prosperity.
If you've ever tried to buy a car or a house, you've probably faced the monthly payment math trick. It's a psychological trick salespeople use to get you to buy something you couldn't afford or to pay an amount you weren't originally comfortable with.
A salesperson will try to convince you to purchase something based on the monthly payment you'll have to make. It frames the purchase in a way that lets you begin integrating the purchase into your life, before you've actually made it, and may even make it more likely you'll make the purchase.
Here's an example: Let's say you want to buy a car and you are looking to spend $12,000. You begin looking around and find a nice used car for $12,000. You figure you can get a loan at 6% for four years on the $12,000 and walk out of there paying $281.82 a month and feeling pretty good.
You've figured out your budget in your head, whether you can afford $281.82 each month for the new car, whether you'd trade $281.82 of other stuff in your budget in order to .... See how you've already made the purchase in your mind?
That's when the salesperson says: "Why not get the next model up? For the same monthly payment, we can restructure your loan so that you keep that $281.82 a month, except we stretch it out only two more years." Wow, not a bad deal, right?
You think to yourself, "That is a nice car. I can afford $281.82 a month. Why not?"
The "why not" is because your total original cost was $13,527.36. The total cost of the higher model is $20,291.04, a staggering difference of $6,763.68. While the total cost increased, your monthly amount remained the same.
Don't fall into the monthly payment math trap.
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