I got a brochure in the mail last month. “Get a car loan with us!” was the general theme. Now it was from my local credit union, and their rates are reasonable compared to other loan options, if borrowing money is what one plans to do for their car. But unlike your credit card statement (courtesy of the CARD act that went into effect in 2010), there is no “payment warning” sections (like sections 3 and 4 in that link) on advertising for your car or mortgage loans.

So what does a car loan cost you these days?

If you’ve got “good enough” credit, a current rate might be 2.9% APR. If you’re buying a $30,000 car, a 60 month term (aka 5 years) would correspond to a $538/month payment. The total cost for your $30k car is ~$32.3k, or specifically you’ve paid $2,264 in interest that you could have saved towards your next car (or other life goals).

You can do this math in Excel, or use a web calculator, if you want to look at your own situation.

How about that mortgage loan?

A 30 year fixed rate mortgage is a very common option, and the “as low as” rate right now of 3.756% on a $300,000 house, if you never pay anything extra towards that mortgage, would over 30 years cost you $500.5k (an extra $200,532).

That’s almost an extra house!

And that’s in today’s really low interest rate environment!

What was that mortgage loan costing a couple of decades ago, like when my parents got their first mortgage, at a whopping 17% interest rate? Oh, those are some scary numbers. That $300k house would cost you $1,540k, aka 1.5 MILLION dollars! And if you sold that house at 15 years, you would have paid down less than $25k in principal, essentially ALL of your payments for that 15 years would strictly have gone towards interest and you’d recoup almost nothing to put towards your next house.

Let’s take a look at that scary scenario:

Ignored here is the opportunity cost of money, and the risk of default. If you are paying interest to a lender, that money isn’t going towards your future (and it can’t be invested), it’s going towards your past. And if something happens, such as losing your job or a medical event, if you stop paying your bill, then a secured loan means the lender can come take away the item you were making payments on – buy buy house, car, and all of the payment money you’ve put in towards it so far (even if you were 95% done paying it off).

I love life with a plan, a life based on thinking ahead and making the best decisions you can with the information I have. Now that you have this information, what are you going to do with it?