134 Laird Drive Toronto, ON M4G 3V7 The interest on a credit line is a variable (floating) rate. This means that when the prime rate changes, so does the interest charged on your credit line. You have no protection from increasing interest rates. The advantage of financing with a fixed interest rate from the dealership's Dealer Plan is that the interest rate is locked in protecting you from climbing interest rates. You always know exactly what your pay-ment is and when it will be paid off. Dealer Plan loans also offer variable interest rates, so that if you wish to stay with a variable interest rate, you can keep your Line if Credit in tact and available for other purchases or investment opportunities.
Special Note: Many people are attracted to credit lines because of their low interest rates. Rates on an unsecured (no collateral) credit line can be as low as one or two points over the prime rate. However, credit line interest rates can be substantially increased by the branch. If, for example, you were slow repaying your monthly credit line obligation for 2 or 3 months (because of some unforeseen difficult circumstances), your credit line interest rate could be more than DOUBLED! Credit line rates can increase even if the prime rate doesn't!
Furthermore... In many cases, Dealer Plan fixed interest rates will be less than 2 percentage points higher than credit lines. With the fixed rate you always know what your interest rate will be, how much your payment will be, and exactly when it will be paid off!
If you have an outstanding balance of $30,000 on your credit line be-cause you have used it to pay for your vehicle, this means that your monthly payment would be 3% of $30,000, which equals $900 a month! This is much more than what a monthly payment would be over a normal 60 month term on a Dealer Plan loan (approximately $600 month or less).
You may also be given the option of making interest-only payments. In this case, you are only paying the interest charge for a single month and not paying down the principal amount of the outstanding bal-ance. Although this may seem convenient and affordable, for many people this becomes a TRAP where they become comfortable paying the lower amount each month, yet never pay down the balance.
Many credit lines for businesses have fees such as a $15 - $20 per month usage fee and a charge to certify cheques (even secured credit lines). Even if you are able to obtain a very low variable interest rate with your credit line, these extra charges may end up costing you more per month than a higher fixed interest rate through the dealer-ship's Dealer Plan.
Disability insurance on a credit line does not usually cover the entire payment; rather it covers the payment on the average balance over the previous twelve month period. You may be in a situation where you are unable to cover the minimum required payment on your cur-rent balance even if you have the disability coverage.
Unlike Dealer Plan disability insurance, credit line coverage often re-quires the completion of a medical questionnaire at time of credit line application to qualify for the coverage. You can even be denied cover- 2 age based on your answers to the questionnaire. Further, disability coverage on credit lines are referred to as "elimination" policies. This means that there is normally a wait period; a period of time where no benefits are paid. Ninety day wait periods are common with credit lines. Credit line coverage may have other restrictions before benefits are paid.
Disability insurance on a Dealer Plan loan makes your loan or lease payments in the event that you are ill or injured and cannot work at your job and chosen profession. There are no medical questionnaires, blood or urine tests or physical examinations required for acceptance into the program and all customers are accepted into the program re-gardless of occupation and current health. All customers in the insur-able age group (e.g. ages 18 - 65) also pay the same premiums. There are no limits to the number of claims during the life of the loan or lease agreement, confinement to the home or hospital is not required for payment of benefits, the coverage pays in addition to any other insurance benefits or salary continuations being received and there is no income tax payable on the benefits. You can even choose various "retroactive" plans that pay benefits from the first day of recorded illness or injury.
Disability insurance on a Dealer Plan loan makes your loan or lease payments in the event that you are ill or injured and cannot work at your job and chosen profession. There are no medical questionnaires, blood or urine tests or physical examinations required for acceptance into the program and all customers are accepted into the program re-gardless of occupation and current health. All customers in the insur-able age group (e.g. ages 18 - 65) also pay the same premiums. There are no limits to the number of claims during the life of the loan or lease agreement, confinement to the home or hospital is not required for payment of benefits, the coverage pays in addition to any other insurance benefits or salary continuations being received and there is no income tax payable on the benefits. You can even choose various "retroactive" plans that pay benefits from the first day of recorded illness or injury.
Dealer Plan loans are referred to as "installment credit". You make equal monthly payments based on the initial amount financed over a chosen fixed term (e.g. 60 or 72 months).
There is no guaranteed repayment term attached to a credit line (e.g. like a 60 or 72 month term on a conventional loan). Since the term is not guaranteed by the financial institution, this means that the line can be "called" at any time. If the financial institution has concerns about your ability to repay the balance owing on your line (because of an economic recession, a downturn in your career field, job loss, etc.) they can demand FULL repayment of the balance owing on thirty days notice. The financial institution may also become nerv-ous about your ability to repay when your credit line is constantly at its maximum and you are making interest-only payments. In some cases the financial institution may force you to close your credit line and re-finance the balance on a high interest consolidation loan. In this situation, not only do suffer the high interest rate, but your credit rating is damaged as well. The credit line is reviewed each year by the financial institution to decide whether or not to allow it to continue.
There is no guaranteed repayment term attached to a credit line (e.g. like a 60 or 72 month term on a conventional loan). Since the term is not guaranteed by the financial institution, this means that the line can be "called" at any time. If the financial institution has concerns about your ability to repay the balance owing on your line (because of an economic recession, a downturn in your career field, job loss, etc.) they can demand FULL repayment of the balance owing on thirty days notice. The financial institution may also become nerv-ous about your ability to repay when your credit line is constantly at its maximum and you are making interest-only payments. In some cases the financial institution may force you to close your credit line and re-finance the balance on a high interest consolidation loan. In this situation, not only do suffer the high interest rate, but your credit rating is damaged as well. The credit line is reviewed each year by the financial institution to decide whether or not to allow it to continue.
Why waste the "privilege" of your credit line on a vehicle, when low, fixed rate interest financing is so easily available through your Dealer-ship. And, if the allure of a low interest rate is just too attractive, Dealer Plans now also offer variable interest rates. However, with a Dealer Plans variable interest rate, your payment will never go up - payments remain fixed even if the interest rates go up. Additional in-terest is simply added to the end of the loan.
Have your new vehicle financed by a Dealer Plan loan and still have your credit line untouched and completely available for whatever you want!
The interest on a credit line is a variable (floating) rate. This means that when the prime rate changes, so does the interest charged on your credit line. You have no protection from increasing interest rates. The advantage of financing with a fixed interest rate from the dealership's Dealer Plan is that the interest rate is locked in protecting you from climbing interest rates. You always know exactly what your payment is and when it will be paid off. Dealer Plan loans also offer variable interest rates, so that if you wish to stay with a variable interest rate, you can keep your Line if Credit in tact and available for other purchases or investment opportunities.
You are depleting a large sum of money from your savings or investments when you pay cash for a vehicle. This money could be needed for emergencies at a later date. e.g.:
In the event that you become disabled and unable to work, you may have little money to draw upon from savings for income if you have paid cash for your vehicle. By financing the vehicle and insuring the loan with credit to qualify for very inexpensive credit life and disability insurance premiums. This is due to the fact that the insurance is an averaged premium, which means that all customers that qualify (generally between the ages of 18 and 65) pay the same premium. Customers over fifty would normally pay much more money for insurance than a younger person if it was purchased directly from an insurance company.
Paying cash for a vehicle depletes money from your savings. This limits your investment opportunities. At some time in the future if you still have your savings, they could be used for:
Special Note: The new Tax-Free Savings Account (TFSA) is a flexible, registered general-purpose savings vehicle that allows Canadians to earn tax-free investment income to more easily meet lifetime savings needs. The TFSA complements existing registered savings plans like the Registered Retirement Savings Plans (RRSP) and the Registered Education Savings Plans (RESP).
How the Tax-Free Savings Account Works:
The next page (INVESTING YOUR MONEY INSTEAD OF PAYING CASH) is called a INVESTMENT ANALYSIS. It demonstrates that even though you pay interest on a dealer plan loan, you can make enough money through a conservative investment that would more than pay for the interest on a loan as well as an additional profit. The pages following the INVESTMENT ANALYSIS offers a step by step explanation.
Most mortgages allow you to pay off up to 15% of the principal amount borrowed each year without a penalty. By paying down your mortgage instead of paying cash for your vehicle, this significantly reduces the interest charges and the amortization of your mortgage. The savings more than offsets the cost of interest on a vehicle loan.
When you pay cash, there is no establishment of a positive credit rating. A positive credit rating is essential for borrowing money from financial institutions for things such as mortgages, lines of credit, home improvement loans, credit cards, etc. Financing through your dealer plan establishes your credit rating.
Pay Down Your Mortgage
| Amount Borrowed for Vehicle | $40,000.00 |
| Term of Loan | 72 Months |
| Interest Rate (%) on Loan | 6.00% |
| Cost of Borrowing (Total Interest) | $7,730.24 |
| Total Note | $47,730.24 |
