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Beware The Monthly Payment Math Trick

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If you’ve ever tried to buy a car or a house, you probably faced the Monthly Payment Math Trick. It’s a psychological trick salespeople use to get you to buy something that you couldn’t afford or 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 were looking to spend $12,000 on a car. You started looking around and found a nice used car for $12,000 but then the salesperson started talking about the benefits of their newest model. You figure you can get a loan at 6% for 4 years on the $12,000 and walk out of there paying $281.82 a month and feeling pretty good.

You start figuring 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 $20291.04, 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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6 Responses to “Beware The Monthly Payment Math Trick”

  1. Fred says:

    You can just imagine the grin on a car dealer’s face when an uneducated buyer walks through the door and says “I can afford $300 a month.” Car & Driver ran a great article a few months back that highlighted all the common tricks a dealer uses (I think there were 12 in their article – including the one you cite here). Getting buyers into ‘payment mentality’ is absolutely KEY for dealers… Once you’re in that mindset, its a downhill slope for the dealer to sell you tons of things you don’t need, for money you don’t have.

  2. Mrs. Micah says:

    So true. I think that people assume they’ll have a car loan anyway so they might as well stretch it out. But there’s something to be said for paying it off quickly besides the money saved in interest. My parents have probably always had a loan out on one of their two cars. However, they had the good fortune to have just paid off one when the other (already paid-for) one died. Because of the timing, they were never paying on BOTH cars at once. The loan time made a very handy difference there.

  3. It’s not only cars, it’s everything. The variation on this is the “close to the ridiculous” as in, “Mr. Buyer, if you get this newer model it’s only another $25/month. Heck, that’s what’d you pay at Starbucks in a month!”

    Or for houses (my niche), “Hey, Mr. Buyer, for every $10,000 it really only means about $60/month. Do you want to let this great house slip through your fingers for $60?”

    Of course, as in all things, cars or houses, if the buyer really, really likes it and they really, really want it using Monthly Payment Math Trick means they want to, er, buy into it.

  4. Ben Rasmusen says:

    I actually fell prey to this with the first home we purchased and it nearly got us into some hot water before we were able to sell it. It’s tough because I know this stuff already, but in the moment it’s hard to keep your head straight and think rationally.

    Recently my wife and I were shopping for a used car and they used this trick along with every other one in the book. It was hard fending them off, fortunately we were able to stay strong this time.

    Thanks for the great post, I need reminding of this all the time!

  5. Anonymous says:

    They pulled that with my co-worker a couple months ago when she was in a market for a new car. She kept them on point by focusing on the car price. She got a great deal.

  6. This hard pressure sales for buying a car just makes me sick. The last vehicle I bought we went through our credit union. The first guy I got was trying to sell me a car based on the amount I was willing to spend! He tried to talk me into buying a convertible! Next he tried to push one of those tiny station wagons onto me which my then 12 year old son could barely squeeze into and he’s grown about 8 inches since then. It was a horrible; I told him straight out I wasn’t interested. Then I tried a different guy at the credit union – I’m not sure why I didn’t just forget about them altogether. Anyway, this guy was much better. He started looking for what *I* wanted, which was a Nissan Pathfinder. I had researched and found that we needed a larger vehicle as we have to haul our own water where we live, which can’t be done with a small vehicle. The car is fantastic and I still have it with 258,000 miles and counting.


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