When you are planning to get a loan to purchase something, you should consider its total cost of ownership. This is important because if you are thinking of purchasing a house, car, tools or appliances, you should look at its total cost of ownership which include the interest payment, usage and maintenance and its resale or end of life value.
Most sales person will convince you to buy from them by focusing on how affordable your monthly payment will be. They normally don’t discuss the total cost of ownership of what you are buying. For example, when buying a car, you will be convinced that you can afford the monthly payment since it’s just a few hundred of dollars and can easily fit in your budget. What people tend to overlook is the length of the payment to completely pay the loan. When you multiply the number of months you will need to pay and the amount you will get the total purchase price. Add to it the maintenance cost and insurance cost and you will get the total ownership for it’s lifetime. It is very common to see a total cost of ownership amounting to double the original price of the house or car.
Once you get the amount of the total cost of ownership of a house, car or appliances then you can make the best decision about it. This information will make you see clearly if you can really afford what you are trying to acquire or if you really want to spend that much money to own it. It will also allow you to objectively revisit your desire to get a house or car that you can’t really afford and get something that will satisfy your functional needs and make more sense economically. So instead of a million dollar house, perhaps you can live with a half million dollar house. Instead of a brand new pickup truck or luxury suv, perhaps your travel needs can be satisfied by a less expensive used car.
But don’t go cheap just for the sake of saving since you might end up spending more in maintenance and low resale value. Some initially more expensive brand cars may end up having lower total cost of ownership than other brands due to its lower maintenance cost and higher resale value. So do your research and figure out which will give you the total lowest cost of ownership that you are willing to take.