Not so fast!
If you’re looking to finance a swimming pool, you will undoubtedly end up with a decision to make about the length of time you’d like to take to repay your loan. A common theme among financing sources is that the longer the term, the smaller the payment. This is true, BUT it doesn’t tell you the whole story.
Example:
Let’s take a $50,000 project as an example. Most people in the market for a project this size or bigger have cars in the same price range. Those car loans usually won’t stretch past 5-7 years. If you needed a 30-year term to buy that car, it might be too much car. Let’s look at pools and other home improvement projects:
Assuming the rate is the same for a 30-year home improvement loan as it is for a 15-year loan (It’s usually higher, but not always), here’s what you need to know to compare:
A: At $50k and a 6.99% rate with a 30-year term, that’s a payment of $332 per month
B: At $50k and a 6.99% rate with a 20-year term, that’s a payment of $387 per month
C: At $50k and a 6.99% rate with a 15-year term, that’s a payment of $449 per month
Now, let’s see what those projects cost by the time you pay them off.
In example A, the total payments are $119,520. That’s 360 payments (30 years) at $332 per month.
With example B, the total of the 20-year payments is $92,880. That’s 240 payments (20 years) at $387 per month. Getting better, but still a lot.
In example C, the 15-year term has a total payback of $80,820. This is 180 payments (15 years) at $449 per month.
As you can see, while the longer term looks attractive at first because of the smaller payment size, it’s never the right decision if you don’t mind a slightly larger payment. The difference from the 30-year to the 15-year is $38,700! And that’s just the ADDITIONAL interest you pay over the life of the loan, all to save yourself $117 per month. The reason the difference is so stark is that on the shorter-term loan, all of that extra $117 is essentially going right to the principle of the loan and paying it down. On the 30-year loan, you pretty much pay all interest on the front end of the loan.
The only reason to take the smaller payment is if you intend to pay if off quickly and just need the lower rate for a short term. Every year you make payments on a 30-year loan, you pay very little towards the actual loan and the cost of your pool keeps going up. If you are OK with a small increase in payment per month, you can save a fortune.
If you or a family member are in the military we have special rates that you can qualify for, get in touch with us for more details. This offer is not just for active service personel as we also have pool loans for veterans available too.
The takeaway:
The bottom line is, don’t fall for the “we offer the lowest payment” gimmick. This isn’t a lease. You are buying this and trying to pay it off so you can build equity in your home. Make sure you have a qualified loan consultant run these numbers for you before you decide. Everyone’s situation is different but the more you know, the better.
