Should you buy a tractor with 0% financing in 2023?

hey friends it's me Micah and this is the the the the homestead bandwagon thank you so much for hanging out with me today is going to be really thrilling I'm going to be talking about the wild world of tractor financing oh boy buckle up those seat belts it's going to be a wild ride so right now it's 2023 in case you're a time traveler from the past looking into the future or somebody in the future somehow watching videos made in the past or if you're in the present right now you may be aware that prices on stuff are up and interest rates are also up things have gotten quite expensive and you might be browsing around for a tractor and hey what do you know you see an advertisement for zero percent financing on a new tractor that's incredible free money you can afford today to buy a machine that you don't have the money to pay for and you won't even be penalized for making payments there will be no interest for buying that machine right there couldn't possibly be a catch could there well maybe there's not a catch but there's some things you should be aware of if you are planning on financing a tractor or maybe even a lawnmower and to a certain degree as a car I'm not going to get too deep into the weeds with car stuff we're just going to stick to tractor financing I was in the automotive industry for 12 years doing stuff on the sales side and in the tractor industry now for about six years I've seen a lot of financing come across my desk I've worked with thousands of people financing machines um I think I've got some experience in this realm so what's going on with zero percent financing how could it still exist when interest rates are Sky High and prices are Sky High are these Banks crazy uh no but uh let's let's let's let's let's go to the Past real quick here and just kind of get to know the the history of interest rates I I promise it'll be only slightly boring so previous to 1989 there was no governing body or or system for credit right there was there was no FICO system prior to 1989. um you kind of depended on your relationship with a bank or you know having lots of references or just you know slowly building credit with singular institutions um and coming into the 80s as well interest rates were what we would now say very high you know I looked at my grandparents mortgage on the place we're at now at one point they were paying nearly 20 percent interest that wasn't unusual on a mortgage now we would think that you know for a bank a house and land is is pretty risk-free they can repossess it and sell it with ease but Banks were risk-averse they really didn't know you that well so yeah you'd put down half and have a 15 interest rate on a mortgage that was normal people were happy to be able to do that because it meant that they could own something now that's how credit works right you can own it now pay for it later okay we get it so coming into the 80s interest rates were in the double digits you know the prime rates if you were a great buyer where you know 11 12 13 maybe 15. um I don't believe there are even lenders out there willing to lend for tractors I don't know but that's my assumption um and then this FICO thing happened and all of a sudden interest rates started going down um and this was a benefit to the consumer um you know interest rates instead of being 12 13 14 maybe you could buy a house and have an eight percent rate that's crazy huh how low of a rate is eight percent it's mind-bendingly low in the history of of credit markets at least in the U.S going back into the you know 50s and 60s it's a it was an amazing rate um and that's where rates are at today we're we're at the same rates as we were in the 90s there was a couple blips in the interest rate radar um you know in around 2008 when we had the last financial crash interest rates were around three percent for Prime rates and uh a couple years ago prior to 2023 interest rates did that again they went way down to like three percent which is stupid right why would a bank give you twenty thousand dollars and only ask for three percent back it doesn't make sense um and that's what I'm getting at now there's no such thing as a free lunch these low rates cause buying frenzies in my opinion and you know historically we'll see this people will start buying more and more and more stuff all of a sudden there's more demand than Supply prices raise and people also go broke they can't afford that house they bought that they felt they couldn't afford not to buy because rates were so low so it pushes people to the market to have very low interest rates and that's the point of these zero percent programs to push people to the market and there can be a benefit to the consumer if you're paying no interest on a loan there's really no good reason not to buy that thing that you're gonna buy anyway you just don't have to wait 10 years to save the money you can buy it now Finance it at zero percent for seven years you don't have to have the cash in hand right so banks have to make money right they've got people they gotta pay they've got lawyers they've got accountants they've got secretarial staff they've got sales people you know selling their products to other people they've got you know Xerox machines they've got computers they've got copy paper they've got toner you get my point they got to have money so how are they just giving away money at zero percent now some people may tell you well are the manufacturer of my product my transfer manufacturer owns the bank so they can give you a free a free loan and that's either somebody who doesn't really know what they're talking about or is just straight lying to you because a bank is a bank as a bank they have to make money they can't not make money if they're not making money they are not a bank they are a bunch of people without jobs basically who don't have an income you know you have to have an interest rate to offset the risk you take loaning people money because not everybody pays you back so so how are they doing it how are they giving you this free zero percent loan well somebody's paying for it okay so either the manufacturers paying for it or the dealer you're buying from is paying for it that is correct somebody is paying to offset that free money you're getting and this gives you an advantage as a buyer if you know that because it gives you options um some not all but some manufacturers will offer you cash incentives to not take zero percent and even if you don't have all the money to pay cash today for that machine you're buying maybe you can take a slightly higher rate have a lower starting price and then you've got some options for how to pay for this thing and it really really depends on what kind of buyer you are if you're the kind of buyer who you'll buy something on credit and then just makes every teeny tiny little payment over the course of the full term of the loan and that's an okay kind of buyer to be then zero percent usually makes the most sense and of course you can compare zero percent to what I would call Standard financing with your dealer if you can't compare it with them maybe think about talking to somebody else if they're not willing to go to the work for you but most dealers will um now if you're the kind of buyer who hates having payments but you just you need the thing now and you know you're going to pay it off in a couple years that zero percent might not be a good deal for you and obviously if you're a cash buyer and you're receiving cash discounts up front to purchase a machine with cash that's that's a great way to go cash is already zero percent right but let's say you need to sit on the money for a little bit you're flipping a house or something and you're going to use a tractor to help you flip it then it may be beneficial once again to have a slightly higher interest rate but to have a lower upfront price because you're going to pay less for the machine overall um let's look at the numbers here okay now I'm obviously not a financial advisor or a guru by any means but I've seen enough of these situations that I feel like I've got a pretty good handle on them now this these situations might not apply in your state some states are not simple interest States simple interest being you only pay interest for every day that your thing is financed so it's called per diem interest you should probably know by now what kind of state you're in if you're in the kind of state that preloads interest this ain't gonna mean a hill of beans to you really just either take the zero percent or pay cash for your stuff that's the only thing it can do but Most states that are not living in the medieval times have simple interest terms it's a requirement that stuff be sold with simple interest so that's we're going to talk about right now it's just some quick simple interest differences between paying a cash price and getting a higher rate versus getting zero percent but maybe paying a higher price up front here we go so let's say we have a a twenty thousand dollar piece of equipment and if you want to finance zero percent you lose three thousand dollars in uh in uh in discounts so the price goes up by three grand Okay so we've got a twenty thousand dollar loan financed for 84 months at eight percent interest that payment it's 311.72 cents so your total cost of ownership if you make every single payment without paying any extra against your principal balance without ever making big lump sum payments or doing anything out of the ordinary just paying the minimum payment you pay twenty six thousand one hundred and eighty four dollars and 84 cents that's that's the price of financing that's how this stuff works the bank gets a little over six thousand bucks of your money because they took a risk by loaning your money up front that's fair that's how things have worked since money was created now if you pay the higher price twenty three thousand dollars that basically that extra money goes to the bank that's who's paying for it is you um you got 84 months at zero percent with a payment of 273.81 cents now your total cost of ownership twenty three thousand dollars because there's no interest so your payment's better at the zero percent it's 38 bucks a month and uh you've got three thousand two hundred dollars in interest charges that you saved even though you paid a higher price right so you had six thousand in interest but that's offset by the three grand extra you paid for the tractor so you're still saving three grand if you make every single tiny payment over the full term of the loan without ever paying any extra money towards the loan so if you're a long-term borrower that's a great way to go you're going to save three grand and pay no interest and have a manageable payment I mean 273 that's my cell phone payment great payment there now if you're the kind of buyer who pays stuff stuff off early in that scenario you know by year two you got to have that thing paid off because you would have paid about 2 85 dollars in interest so that's how you win right you've you've paid less interest than you would have lost in in in in uh cash discounts if that makes sense so at year two you better pay that thing off so you go out build up a property flip it take your money pay off the tractor You've Won as long as you do it within two years now the reality with these zero percent programs is that they're not quite as simple as just signing your name on a piece of paper and giving nothing getting a tractor and returned in most cases the banks will require like 10 percent down or if you live in a state where they pay where they uh where you pay sales tax they won't Finance the sales tax or let's say there's an Implement you want but it's not a co-branded Implement you know so it's not a it's not a Kubota Land Pride implement you need something better or something different they won't finance that at the zero percent so you'll either have to pay for that thing in cash or they'll hike your rate to offset that they call that a blended interest rate so we're gonna say that in the same scenario twenty thousand dollar machine if you're paying cash um you're going to put 2 500 bucks down because at the zero percent price of twenty three thousand dollars they require a down payment so we're gonna put twenty five hundred bucks down in this same scenario so now uh with the standard rates or the higher eight percent rate you're financing 17 500. so now you've got a payment of 272.76 so that payment came down quite a bit by putting 2500 bucks down your total interest you would have paid is about fifty four hundred bucks so the total interest you paid is is down quite a bit from the previous scenario you know about six six hundred bucks something like that how much yeah about six seven hundred bucks not bad so in the zero percent twenty three thousand dollars financed with twenty five hundred down means you're financing twenty thousand five hundred so you're financing more up front because you're getting that low low zero percent interest rate and your payment's 244. so your payment's still lower than it was with the interest rate so it's a better deal overall your cost of ownership is lower overall if you make every single little payment without paying extra but again if you like doing big lump sum payments every year to pay down your loans if you like to pay extra on your loans every month that that math kind of gets a little more gray because now we have a 28 a month difference and about you're saving only about twenty four hundred dollars with going with the zero percent versus the standard rate at a lower price so which one of those deals is better you know if you're making extra on your payment every month you're going to buy that principal balance down you're going to be charged less interest per month as well all of a sudden taking that lower price up front might be a good deal for you and that's why you've got to know thyself know who you are as a buyer now you can completely beat the zero percent by putting nine or ten thousand bucks down all of a sudden then the zero percent doesn't make any difference your payments are exactly the same your total cost of ownership is exactly the same so keep that in mind too if you're the buyer who likes to put down a big lump sum and have a tiny payment maybe that zero doesn't make sense because again you may be able to get a lower cash price and sometimes all you have to do is talk to your dealer you know you might be working with the dealer who's just used to everybody coming in foaming at the mouth for zero percent they're not used to offering the cash discount to people ask them say hey is there a way I can get a cash discount on this for accepting a higher interest rate there might be they might just not be used to it ask them to go look it up they might not know they might like I said be so used to people coming in wanting that zero and only that zero all they do is offer the higher price and a good dealer they'd be more than happy to let you pay a lower price if they're not being penalized for you getting a low interest rate because maybe they're paying to have the interest rate lowered to zero percent that's not uncommon so what I'm saying here is work with your dealer you know go in with some knowledge also buy within your means you know don't just buy something just because it has a zero percent on it make sure you can afford it that's important to do and also if I could give you a small suggestion look for a win-win there is no good reason to go out there and try to try to gut your dealer you know to go to your dealer and try to make sure they're not making a single penny on you because if your dealer doesn't make any money they won't exist anymore and you could say yeah I'll let the next guy you know pay the price but that's kind of mean too man would you uh you know go to Starbucks and steal a drink and then let the guy in behind you pay for that drink because you decided you didn't want to pay your fair share of course then you wouldn't so why would you do that to somebody buying a tractor you know we can all win you can win by getting a decent deal on a tractor at a price you can afford and your dealer can win too by making a profit on that machine so that he or she could exist for the next 20 30 40 50 60 70 years and serve you and your family to give you part support to give you service support to give you good advice so again I encourage you look for a win-win when you're buying your machine and uh you know go in with a little knowledge and ask your dealer hey man how can we find a way for this to work for the both of us and I think if you go in with a positive attitude and an open mind and uh armed with a little knowledge as well you can put yourself in a great position that uh maybe you wouldn't have been in had you just charged in and just taken the first deal you looked at all right well you all take care of each other be kind we'll see you soon [Music] [Music] [Music] [Music]

Channel: Homestead Bandwagon

Views: 6,054

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Id: ypyz7P89omE

Length: 19min 52sec (1192 seconds)

Published: Sun May 28 2023