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Beware The Monthly Payment Math Trick

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!