Whether your interest rate is great or just average, in the end it all comes down to just how much you're comfortable paying every month, a figure you must add to your already lengthy list of financial obligations. The ultra-conservative side of me says to do a low payment for a longer period. If I finance $25,000 for 10 years at an interest rate of 7 percent, my payment is an affordable $290. The catch? If I let the loan run its course, I'll have paid out a whopping $9,832 in interest.
I'm pretty confident, however, that I can make the payment on the shorter-term loan, say 66 months. If I can cut it, I'll save nearly $4,000. Murray senses my dilemma. "Think about it. The money you wasted by going long term and paying only the minimum could have let you upgrade to bigger engines or even a bigger boat."
But what if I commit to the shorter term and encounter financial difficulties down the road? "If you're worried, play it safe and smart," says Murray, again whipping out his calculator. "Take the longer deal, but add to your monthly payment. Say you pay another $100 a month. That 10-year loan will be paid off in less than 7, and you'll save about $3,400. Or make that bigger payment from the 66-month term. You'll pay if off the same as if you took the shorter-term loan. But you'll have a safety net. If trouble pops up, you're only committed to the smaller payment."
My financial education evidently complete, he buttons up his greasy overcoat and tosses me his trusty calculator. "It's yours now," he says, opening the showroom door and gesturing me back toward the office I once feared. "There are no more secrets. Matter of fact, there never were."
As he starts to leave, I can't help but ask. "Hey, Murray, what's up with that flasher getup? C'mon, a financial genius like you has to be able to afford some nice clothes."
"Kid," he responds, gazing out at the multitude of boats bobbing at the dock, "I was one of the guys who approved all of your buddies' loans not so many years ago. And frankly, this is all I have left."
As he walks out the door, sunlight gleams off his naked legs, and I'm suddenly intensely aware of the calculator resting in my hand. "Uh, Murray, please tell me you had pockets in there..."