Almost 100% of fire departments who call ask the same thing -  Can we pay this off early without penalty?

The department is silently saying 2 things – 1. We can afford a higher payment but want the option of lower payments, and 2. This is a free move if there is no penalty.

 It’s not free and here’s what it costs

While there is not a penalty, the department pays a fairly high cost.

The chart below shows two different financing plans for a $400,000 truck.   The red bars are the interest paid by signing a 10 year financing plan and paying off in 5 years.  The green bars are the interest paid by signing a 5 year financing plan.  Both assume the same interest rate (although a 5 year rate will be lower in reality).

The total amount of interest paid for the 10 year plan paid off in 5 years is $ 45,022.

The total amount of interest paid for the 5 year plan is $ 33,594.

The10 year/paid off in 5 year plan costs 34% more!

 Summary

Financing mistakes compound.  Which means they get bigger with time.  If you are considering a lower payment than what you can afford and paying off early, you are making a costly mistake.  Simply sign up for the payment you can afford.

If not, you might be overpaying.

And the difference between these 3 numbers can easily add up to 1 full percent to what you are really paying.

A recent financing offer showed an interest rate of 2.75% and a APR in small print of 3.64%.

If you aren’t asking for the right information, you can easily be duped.

Feel free to ask a question below:

We helped a fire department who had a reasonable payment budget for its new fire truck.  It also had a reserve account to save for future truck purchases.  However, the department’s past practice was to use the reserve account and pay off its loan early.

The fire department requested a 10 year payment plan for its $480,000 new fire truck.  Based on what they requested, the department would have paid about $73,000 in Total Borrowing Cost.

We showed the department how to:

1. Reduce its financing costs.  The department could use part of it’s reserve to cut its financing term from 10 to 5 years.  Doing this would cost the department about $23,000 in Total Borrowing Cost.
2. How to avoid wasting $27,000. But, if the department budgets reserves for 5 years and then uses its reserves to pay the loan off early, the Department will pay about $50,000 in Total Borrowing Cost – more than twice as much.
3. Really have a reserve fund for the next truck.  The department’s financial strategy never builds up a reserve that it can use for the next truck.  By using a portion of its reserve to reduce the term, the Department will build a reserve and can really build up a reserve by not having payments after 5 years.  It will be ready to borrow much less, or even pay cash, for its next truck.

Summary

Develop a financing plan that fits your behavior and costs the least amount of money.

Shorten your financing term by 1 year.  Instead of a 10 year term, choose a 9 year term.  Or a 6 year instead of a 7 year term.

This small adjustment will:

• Save about $10,000 on typical fire truck.  It’s like getting a 20% discount.
• Will only increase payment by a few thousand dollars

By thinking differently, you can save a lot of money.

Feel free to ask a question below:

But, you’ve been misled.

The only way to pay the lease money is to pay the lowest Total Borrowing Cost.  That’s the total amount you pay.

The typical fire truck will have about $40,000 in financing costs.

A lower interest rate will save a few hundred dollars a year.

Using Total Borrowing Cost, you’ll save thousands each year.

Summary

If you focus only on rate, you miss fees, hidden costs, and money saving tweaks that can add up to tens of thousands of dollars.

Interest rates are important but only 1 part of how much you pay for fire apparatus financing

Yet, they don’t know that there is a different tool that can save 3,4, or even 10 times as much as getting the lowest rate.

What is the tool to use to save money?

It’s called Total Borrowing Cost.  And it includes the interest rate PLUS the other factors that determine how much you pay to borrow money.

On a typical fire truck, getting a lower rate will save about $3,000.

Using Total Borrowing Cost, the typical fire department saves over $10,000.  Some departments have even saved much more than that.

Summary

Use more modern techniques, Total Borrowing Cost, to pay the least amount of money.

It’s mis-timing their payments.

If you miss this key factor, you could have budget stresses and overpay for financing.

The Total Borrowing Cost of a typical fire truck is about $40,000.  Imagine learning how to save $6,000 easily.

Here’s a story how one department learned to save $20,000 by avoiding this mistake.

A North Carolina fire department was buying a new pumper for $551,984 and had a $100,000 saved up for the down payment.

The department’s primary goal

The department was focused on having the lowest payment.  But, it almost missed a small tweak that saved it a lot of money.

What the department learned

It was so focused on the payment amount, it missed 1 of the 7 Key Financing Factors – the 7 things that control how much your pay for your Total Borrowing Cost.  It missed the payment timing factor.

The Total Borrowing Cost analysis of First Bankers showed how to adjust their payment date within their budget year.  This is something most department’s fail to ask.

The results

By simply right-timing the payment, the Department got a lower payment which was their goal  AND they also saved $20,789 in Total Borrowing Cost.  It really was two birds with one stone.

Knowing this saves a lot of money

This fire department narrowly avoided wasting $50,000

This Oregon fire department knew what it wanted…. until it learned some secret information that would save $50,000

Background

The department did its due diligence and was 100% sure that it needed a 10 year transaction to finance its new fire truck based on its payment budget.

So, it called around to get the best 10 year interest rates and called First Bankers.  Based on what they requested, they would have a Total Borrowing Cost of about $73,000.

Imagine their surprise when the department could get what they wanted and save $50,000!

We completed an IDEA Review – a specialized financial analysis just for fire departments.

And we suggested some small tweaks to what they requested.  And they saved $49,592.

Summary

There is probably always a better way.  When you are open to receiving new information, the cost savings can be huge!

Background:  This Virginia department asked for the best interest rate for 5 years.

Imagine their surprise when the learned how they could cut their borrowing cost in half!

 Results:  When you get better information, your department can make decisions that saves thousands of dollars and prepares your department for the next truck.

Watch the video to see exactly how this department achieved these results.