Future Value of Interest Paid

The calculated long-term effect of financing cars over one's car-buying lifetime.

Click on any of the 5-year year intervals to cap the calculation to that timeframe.

The interest you will give away in financing costs you a great deal.  Do you know how much?  This interest, if you had kept it, could have earned for you over $117,000 in 40 years at 8%, not factoring investment costs. If you continued to finance only $25,000 cars over the next 40 years (assuming this is your car-buying lifetime), you could lose over $770,000!  That is the amount that could be lost from your Circle of Wealth financing only one car every five years.  The more cars you add to the equation, the greater the loss.

A key concept to remember here is that our Circle of Wealth is a finite amount and even seemingly small losses today can have devastating long-term effects.  Many people have $25,000 saved in their retirement accounts, which are inaccessible.  They are then forced to borrow and transfer interest to another institution.  Let’s assume your right pocket has $25,000 of retirement money earning 8% in it.  Out of your left pocket you must borrow $25,000 at 8%.  Are you any better off?  What is really happening?  You certainly are not getting ahead.  The retirement account is inaccessible and will be taxed when withdrawn.  The money borrowed is non-deductible and must be repaid with after tax dollars.

A big problem for many people is that their savings may be substantially tied up in their retirement account.  They feel very good about their savings discipline.  They are unaware that some of their other decisions are thwarting their gains.  Each financial decision must be considered in relation to the whole.

This screen finds the future value of JUST THE INTEREST part of the car payments.  Compounding is annually as opposed to monthly.  For the default case of total interest paid equal $4,332 and 8% annual interest, the 50-year future value is:

Future Value = $4,332 X (1.08) ^ 50 = $203,178

The rows for 45 years, 40 years, etc. are calculated similar to above.  Replace 50 with the number of years each row represents.

The bottom line sum represents the cumulative wealth transfers generated by repeating the car financing cycle every five years. E.g. over a 20 year period, 4 cars would have been financed, with each compounding period being 5 years less than the previous one financed. [Newest car to oldest car: 1@5 + 1@10 + 1@15 + 1@20 = cumulative sum]

TIP: Click the row label, like 30 years or 20 years, to change the number of years that are totaled at the bottom of the screen.  For example, if a client is only going to finance cars for 15 years, click on 15 to show him the future value of his interest payments for cars.