Evening star., 1961-01-10
Credit Rates
,PuzaeBuyers
.0fNewCars
BY RICHARD H. HOENIG


: BY RICHARD H. HOENIG
Associated Press Business News Writer
: Can I save money by shop
sping around for financing
sterms on my new car?
The question Is often asked
.since almost two Of every three
new cars are bought on time
to-day. And, as motorists know,
sauto price tags keep going up
sand so do the monthly pay
sments.
: But. as often as the question
els heard. seldom does anyone
shave an answer. Regardless Of
advertising claims few auto
buyers ever discover whether
.they really paid about average
.for the credit to finance their
scar, whether they were charged
san exorbitant rate or whether
they got good buy on credit
sas well as the car.
The reason is what has been
Atermed "the state Of confusion
about credit rates" Credit au-
sthorities believe the consumer
knows less about credit buying
.than any other type Of buying
che does. Very few car buyers
sean understand terms such as
."add on" or discount" charges.
And such an understanding Is
necessary to determine their
credit costs.
For example. this is one of Q
half dozen formulas to figure
.That is called true" simple"
sor actual interest: The per.
.centage rate per year is figured
this way: Multiply the finance
charge by the number of pay
,inents a year and then multiply
the total BY two. Then divide
this sum by the figure you get
by multiplying the original
.unpsid balance by the number
fef payments. plus one.
!, Different Answers
Trying to work this out on
..the last car you bought wil|
demonstrate some Of the diff
,culties involved. In addition.
many times the various formu-
Jas produce different answers.
Few auto buyers ask why the
Interest Is IN either money or
rate. Most are only interested
in How much do have to pay
each month";" explains one |
bank official in the auto loan
business. r'f
= There are three common
types of auto finance charges
called the "add on, 2 discount |
and Interest. on the UNPAID |
balance2 methods. One way toI
compare them Is to translate |
each INTO an annual simple m |
terest on The unpaid true bal |
'ance q cash borrowed.
Another way is to convert thej
quoted dollar finance charge
.tif given). TO. q cost per $l0O
borrowed per year. Determin: |
ing the total dollar finance
charge is easier to figure: It Is |
the difference. between the
amount received and the |
amount paid back. This is also
described as the difference be-
tween cash price and time
price.
Under the add on" method
the finance charge is computed
on the amount the buyer wants |
to borrow and then added to |
that amount to determine the
total Of the note total to be
repaid.
Discount" Method I
Under the discount" method |
the finance charge is subtracted |
from Che total face amount Of |
the note in advance to deter
mine how much is actually re-
ceived by the borrower. In order |
to receive a $1,000 loan under
this method the total applied |
for must be higher.
A vital rule Of thumb affect
ing both charges is this: the |
approximate annual interest
rate is double the add on" or |
discount" rate. This is so be-
cause the borrower Is repayingi
part Of the loan monthly and
does not have use Of the entire
.9loan for the full lending period.
He has. on the average. only
half the total loan to use during |
1.-The entire period.
Z Credit unions and small loanI