I wanna be smart about this, and not just listen to them say they can give me this or that rate or payment. I gotta figure out what’s the best deal, see?

I don’t got nothin’ for a down payment, you know how it is. Not like I was expecting to fall for this sweet baby. So that’s $28,000 bucks I’m dealin’ with, on the round. Here’s my choices:

$3,000 bucks off and 4.9% interest for 60 months

Full price and 1.9% interest for 48 months

Which one is the best deal? That’s what I want to know… then I’ll see if I can afford the payments. I’m gonna make this easy and figure the total cost of the interest is (Price) x (Interest) x (Years). That’ll give me a good approximation of what I’m paying. So I can fly fast and figure this out.

So which one’s the best deal? Can you figure it out? I’ll let you know what I figured next week.

1. $3,000 bucks off and 4.9% interest for 60 months
2. Full price and 1.9% interest for 48 months

Here’s the formula:

(Price) x (Interest) x (Years) = total interest

So here’s how to figure the interest for the two deals… see how to get number of years, I divide months by 12? 12 months in a year…

1. ($27,599 – $3,000) x 4.9% x (60/12)
2. $27,599 x 1.9% x (48/12)

Now, it’s just doin’ the math, right… let’s start with the first one… 27 minus 3, is 24. And 60 months are 5 years. Don’t hardly need to know the math.

1. $24,599 x 4.9% x 5

On the second on, all you gotta do is divide 48 by 12… four years.

1. $24,599 x 4.9% x 5
2. $27,599 x 1.9% x 4

You can break out a calculator now to figure this one out….

1. $6,026.755
2. $2,097.524

Damn, the second one’s got like $4,000 less interest. The first one, though, the price is $3,000 cheaper. So if I go with the second deal, I’m payin’ $1,000 less. On the downside, the payments are higher… gotta think this one through….

Tony wanted a loan of $200. So they wanted him to write a check for $230, dated 2 weeks in advance. He can pay back the $230 or they’ll deposit his check. It’s only thirty bucks, Tony said. (Yeah, that’s why he’s broke.) But what kind of yearly interest are they charging?

The loan is for 2 weeks. There’s 52 weeks in a year. So the yearly interest rate is 26 times the percent interest he’s paying. (Get it? There’s 26 x 2 weeks in a year.)

Compare that to 20% yearly interest on a credit card.

He’s paying 230 bucks for a 200 loan. So he’s paying 30 bucks interest. Not cool. Cuz what percentage is that of 200 bucks? To figure it out, I take a short cut. See, 10% of 200 is 20 bucks. (200 x .1 = 20) So, I figure 5% (half of 10%) is 10 bucks (half of 20 bucks). That means 30 bucks is 10% plus 5%… 15%.

I can do all that in my head, see? But if you want to do the math, it’s like this:

30/200 = .15 or 15%

Fifteen percent interest don’t sound too bad, right? But that’s only for two weeks. To get yearly interest, you gotta multiply it by 26.

15% x 26 = 390%

Three hundred ninety percent! Almost 400% interest! I told Tony, you gotta get a credit card. You pay, what, 20% interest? Plus, if you pay it off when you get the bill in a few weeks, which is the smart thing to do, you don’t pay no interest at all. Just like a payday advance, but you’re payin’ nuthin!

Course, it’s dangerous to run up a big credit card bill. And Tony can’t trust himself. So I told him to get a card with a small limit, like $500. That’ll cover him for emergencies, right? Without him gettin’ ripped off too bad. He said, “I ain’t got no credit,” and I told him to call some credit card people. Try to get a card with no fees. Here’s some information I found. Some of it’s for college students, but hey, they’re in the same boat, just getting started with credit cards.

http://www.kiplinger.com/columns/drt/archive/2005/dt051013.html

http://www.youngmoney.com/credit_debt/credit_basics/041203

http://www.ftc.gov/bcp/conline/pubs/credit/choose.shtm

Just see what to do to get started, cuz what’s the point in paying all that extra interest?

Here’s something. This guy I know, Tony, he was strapped for cash. Had to make a car payment, and didn’t want his car repo-d. Yeah, we all been there. Best advice I give him is don’t spend all your dough and get into that situation. But, too late for that. You know how it is, everyone’s hard up.

He was gonna go to one of those payday advance loan places, and I said that’s no good. So let’s look at this. Here’s what they were offering:

Tony wanted a loan of$200. So they wanted him to write a check for $230, dated 2 weeks in advance. He can pay back the $230 or they’ll deposit his check. It’s only thirty bucks, Tony said. (Yeah, that’s why he’s broke.) But what kind of yearly interest are they charging?

The loan is for 2 weeks. There’s 52 weeks in a year. So the yearly interest rate is 26 times the percent interest he’s paying. (Get it? There’s 26 x 2 weeks in a year.)

Compare that to 20% yearly interest on a credit card.

Let me know how you figured out this comparison, and I’ll write later to tell you what I showed my friend.