Busting the Interest Rate Lies – Episode 052

This transcript was auto-generated and may contain errors.

[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your hosts, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome to another edition of the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Once again, we are fortunate enough to have bestselling financial author, Kim Butler with us today. I’m happy to be here, Todd, and I’m thrilled to announce that we have our fourth book coming out and it’s called Busting the Interest Rate Lies. Well, you like, you kind of like busting those lies there, don’t you? I do. Well, you know, interest rates are something that affect us, boy, I guess in every part

[00:55] of our lives. Right now is an incredibly great time to borrow. Maybe not such an incredible time to go down to the bank and buy a certificate of deposit, but why don’t you kind of explain to us the lies and, you know, along the way maybe we can learn some truth. Absolutely. Well, the interest rate lies and I had to really pull for this title because our marketing people are like, ah, nobody wants to read about this, but I do like busting lies and there just isn’t a better title for it in my mind because the interest rate arena is probably one of the most fraught areas of lies in our financial system. And so what we did in this book is take a high school student all the way through his life in dealing with interest rates.

[01:51] So he starts out with a checking account and a savings account and then he gets into a car loan and a credit card and of course a mortgage and he does get into saving money like in the form of cash and he gets investing monies obviously at some point that he’s working with and all these various things have, oh, and a furniture loan, I forgot about that. All these various things have interest rates associated with them and a lot of people do not understand how interest rates work and I mean this is America in the year 2015 that’s somewhat embarrassing to even admit but I tell you my husband Todd Langford and I teach advisors, so these aren’t even clients that you can understand how they might not understand interest rates, but we teach advisors how to interpret and

[02:44] understand interest rates properly and I guarantee you 80 to 90% of the advisors in every single class also do not understand some basic things around interest rates and I think one of the reasons why is because it actually takes a financial calculator to get proper information about interest rates and not everybody’s running around with a financial calculator, probably a good thing, but they are completely available today on the web, so there’s really no excuse for this, but the other reason I think that people have such a struggle with it is that in the typical consumer environment, so think cars and furniture, there is absolute lying going on with interest rates, so let me give some examples, the first one and I always think a lot of people

[03:40] know about this, but when I share it they seem to act surprised and that is the car financing arena, so you’re gonna just drive down the street where all the cars are for sale and you’re going to see 0% interest and it is not 0%, I mean that is a categorical lie, now I’ll admit there have been a couple occasions, for example right after 9-11 there a lot of actually true 0% interest rate loans available on cars, but that is typically not the case, furniture stores absolutely very well known 0% financing, my sister just the other day said hey we got a new mattress and they’re gonna finance it at no interest for the next two years and I just bit my tongue because I wasn’t gonna say anything, but that is a lie,

[04:32] they are not financing it at no interest, so what are they doing, so I want to just check in, have I made the problem clear, yes and the matter of fact this was one of the first jobs I had outside of college and you know you’re correct, someone pays the interest in every one of those examples, yes, so what both the cars and the furniture manufacturers do is they add the interest to the price of the item, so if you have a $35,000 car they’re going to sell it to you for $39,000 and tell you that there’s zero interest when in actuality there’s $4,000 of interest it’s just added to the price of the car and then split out over the course of your loan five years or six years or whatever you’ve got, same with the furniture her $5,000

[05:23] mattress or whatever it is was a $5,500 or maybe $6,000 cost because if she had and this is the key if she had said to them what will it cost if I pay you in cash then they would have had to come back in most cases they would have come back with the lower price so the $35,000 in the case of the car or the $5,000 in the case of the mattress now I understand that not everybody has that cash and so fine we finance things in fact we finance everything that we buy because we’re either paying that interest to somebody in some form or we are taking the lump of cash think about it as a car in particular we’re taking $35,000 out of some account that we have somewhere now the account that we have it in may only be charging 1% or

[06:24] paying excuse me 1% in interest and so okay then our equivalent interest cost is only 1% but the book really lays out so this is our new book Busting the Interest Rate Lies it lays out the fact that a $35,000 car at 0% interest rate is probably $39,000 so if you don’t have the $35,000 then you have to pay $39,000 for it and that’s fine understand that but I just wish that they wouldn’t lie about it I wish that the car financing companies would say this is a $35,000 car and we’re charging you 7% interest or whatever that equates to and that’s the challenge is that people don’t know how to make the equation so the first thing again to do is to get the cash price get the all cash price and 99 times out of a hundred if you ask

[07:14] them it’s going to be lower than whatever it is that they’re telling you so you’re not necessarily saying that this that the 0% interest rate it could even still be the best option but you need to look at the cash option you need to look at going to your bank you need to look at maybe financing it through your life insurance and if you have equal numbers to compare it to you know it could be that the best choice is to take the 0% correct that is correct so just understand that it’s not really 0% so you can’t figure out what it is what the actual interest rate is that they are charging you until you get the all cash price so even if you don’t have the cash get the all cash price so that you know what that is

[08:08] and then either give the information to us and we’ll calculate it on the truth concepts calculators or get on the web and get a financial calculator where you can put in the present value of the loan so 35,000 in this example and solve for the interest rate so let’s say you’re you’re going to be a 60-month car loan five years so you’re going to put in your 35,000 as a cost that’s negative number because it’s a loan and you’re going to put in 60 months and then you’re going to ask it to tell you the interest rate and you also need the future value which of course is zero because that’s the goal is to pay off the car in the five year time frame so if you know those three components the starting points the 35,000 the

[08:59] ending point is zero the time frame is 60 months then a financial calculator will tell you what that interest is so you figure that out at the car financing company and then as you said Todd you can go to the bank the credit union and your life insurance company and ask them what their interest rates are and a lot of life insurance companies have fixed rates of eight percent so they that may not be a very good deal right now the variable life insurance company rates are more in the four or five percent range so maybe that is a good deal and then your banks sometimes can have two three four percent interest rates especially if you’re a good customer and if you’re not it’s going to be nine ten eleven percent especially

[09:39] if you don’t have good credit so then you know then you’re not dealing with a lie anymore then you can have all the facts get it figured out and go with the best financing for yourself well i am very excited to be able to read this book is there a way that our listeners can get put on a list or something i know it’s not quite available yet but so that we could notify them when it is ready to be purchased that is a great question and i don’t have a list available but keep an eye on your email so if you’re not on our email list you’ll want to make sure that you sign up at partners number four prosperity.com and then you will be alerted when the book is available and we’ll put it out at an introductory price so anybody can get a hold of it it will also be

[10:30] on kindle and there will also be an audiobook although the audiobook may be a week or two behind and we’ll make sure that you know it exists so sign up on partners for prosperity.com that’s partners the number four prosperity.com you’ll be alerted when the book is on sale and we’ll keep the price low at the beginning and then i’m i’m sure it will go up from there and also keep an eye on your email for hello at p4peasign that is our system that we use that is our automated automated email system where you will get the alert so when you sign up use an email address that you like but then double check that you have white listed or okayed the hello at p4peasign that’s hello at p number four p e z i n e dot com and i know if you have

[11:25] a gmail address that those go into your promotional tab so if you want to slide that over into your regular inbox or just check your promotional tab every now and then that’s where we will release the book where you’ll find out about it being available where we’ll tell you a couple weeks later that the audiobook is available and then there’s lots of other good things that come from the hello email so again hello at p4peasign.com and if you want to be alerted when the book is ready make sure you’re either already getting emails from us or if you haven’t signed up at partners number four prosperity.com there’s just a simple opt in there and then we’ll notify you when the book is ready super and i have a special favor to ask of our podcast listeners as you get this book and

[12:12] as you start to use it these examples please copy us we would love to see some of these hard numbers some of these hard data numbers that we can share with our listeners and the people on our blog so people can see actual examples of how you know learning the truth versus the lies can educate everyone and i mean you’re going to end up with a better deal on whatever it is you’re purchasing correct absolutely and i want to reiterate too if you can’t figure out the financial calculators we’re happy to do it for you you send us your statistics and we’ll have your answer right back to you so you know what your interest rates are super well kim we are just so excited for your fourth book to come out probably

[12:59] by copy number one so this is no bs money guide todd strobel for the prosperity podcast once again special thanks to our financial author kim butler and we look forward to talking to you all again real soon thank you for listening to the prosperity podcast to take control of your money and have it work for you visit us at partnersforprosperity.com if you liked this episode make sure you subscribe and leave a review