This blog post is the third in a three-part series. Read Part 1: How Loans Work and Part 2 – Know This Before Taking Out Any Loan.
In the first two parts of our Understanding Loans series, we talked about how loans work, why you should compare loans from different lenders, essential questions to ask, and terms to know. But what is the difference between a 12-month loan and a 36-month loan, in terms of money spent? Or the effect of a high-interest rate? Is choosing a loan just a matter of finding the one with the lowest monthly repayment amount?
It’s not quite so simple, as you will see in the following scenarios:
Note: The following examples are strictly representative. Actual loan amounts and terms may vary.
You need to purchase an adapted van. You’re looking at a new Toyota Sienna with a ramp, tie-downs, swivel front seat, and hand controls. After speaking with PATF, you’ve learned that the Office of Vocational Rehabilitation will pay for the adaptations since you’ll use it to get to work, but they will not cover the chassis (the unmodified body of the vehicle), which is going to cost $39,000.
Scenario 1
You’ve been researching your options. The quickest and easiest choice appears to be the financing offered directly through the dealership. They can typically approve the loan fairly quickly. If you have a low credit score, you may be looking at terms like this:
Loan Amount: $39,000
Length of Loan: 120 months (10 years)
Interest Rate: Fixed 12.28% (although we’ve seen interest rates as high as 22.97%!)
Approximate Repayment: $565.86/month
Total Dollars Spent: $67,903.20
Scenario 2
With a high credit score, however, you may be able to secure a lower interest rate. Spread out over 10 years, you’ll have significantly lower monthly repayments, and significantly lower total dollars spent over the life of the loan:
Loan Amount: $39,000
Length of Loan: 120 months (10 years)
Interest Rate: Fixed 7.01%
Approximate Repayment: $453.02/month
Total Dollars Spent: $54,362.40
Scenario 3
Here’s a similar loan from PATF (where your credit score has no impact on your interest rate):
Loan Amount: $39,000
Length of Loan: 84 months
Interest Rate: Fixed 3.75% (our interest rate for all loans over $7,001)
Approximate Repayment: $453.02/month
** PATF’s maximum length of loan term for new vehicles is seven years.**
Total Dollars Spent: $38,053.68
With the current interest rates, and especially for someone with a low credit score, a PATF loan is a slam dunk. Not only are the monthly payments reasonable with a PATF loan for the vehicle chassis, but the borrower with the lower credit score would also save almost $30,000.00 over the course of the loan and would be finished paying it off three years earlier.
In the scenario where the borrower has a high credit score, a PATF loan still saves that person money over the course of the loan – $16,308.72 to be exact and the loan is paid off in seven years, as opposed to ten.
| You can use a loan calculator like the one on our homepage to help you do the math on your loan.
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Too Good to be True?
At first glance, it might seem puzzling how PATF can afford to offer such favorable terms and interest rates, particularly to borrowers who might not qualify elsewhere due to thin credit or high debt-to-income ratios. However, as a nonprofit, PATF raises funds to subsidize the interest rates from our partner banks. This enables us to provide more affordable loan terms with no application fees for Pennsylvanians with disabilities seeking to purchase assistive technology. Additionally, PATF negotiates with these banks to apply our own loan guidelines and eligibility standards.
While our loan process might take slightly longer than with a traditional lender (on average it takes between two to three weeks from when we receive a completed application to when the borrower receives the check in the mail), we are with each applicant every step of the way, guiding our borrowers through the loan process. We also work with individuals to explore other funding resources, making sure they’re getting their assistive technology in the most affordable way that works for them. We believe strongly in consumer choice and consumer control.
The Takeaway
It’s worth it to do a little research and to be thoughtful about taking out a loan. First, decide if a loan is right for you – do you need the purchase right now, and can you afford to borrow? Then shop around to find out what options are available to you and be sure you ask (and get answers to) the essential questions outlined in Part 2. Finally, do the math so you can understand exactly how much you’ll be paying monthly, and in the long term – a little time spent making calculations in the beginning could save you a significant amount of money in the long run!
Check out our success stories to see how individuals across Pennsylvania of all ages, income levels, and disabilities are choosing PATF loans to finance the assistive technology devices they want and need. Still not sure if a loan is the right option for you. Contact us anyway! We’ll help you explore your options and give you the information you need to get the assistive technology you want.