Car Loan Comparison – Corner Bank or Your Banking System

The first consideration is the process to actually get the loan in the first place.

BANK LOAN
Purpose of Loan- Must be for a specific item like car, appliance, home, etc.

Approval- Must be approved for the loan

Credit Check- Approved credit history as well as reliable income source(s)

Terms & Conditions- Interest Rate, Amortization Schedule, Pre-Payment Penalty if any

Collateral Security- Usually the item financed and/or some other cash deposits

Inability to Meet Terms & Conditions- Repossession of item and credit score takes a hit

Recovery or Offset of Financing Costs- Interest, fees or charges cannot be recovered. It’s gone forever

POLICY LOAN
Purpose of Loan- For anything you want. No questions asked.

Approval- Guaranteed access to cash

Credit Check- Absolutely no credit check

Terms & Conditions- Ability to set loan repayment schedule or delay repayment if needed

Collateral Security- Policy values (Cash Value & Death Benefit) secure the loan

Inability to Meet Terms & Conditions- No effect on credit history nor credit score

Recovery or Offset of Financing Costs- Ability of offset financing costs as well as build additional wealth along the way

Now……

Please click on the picture below for the Corner Bank loan details.

We will be comparing the numbers between taking a corner bank loan with taking the exact same loan from Mr. Client’s own private banking system.

The details of the loan are

a $14,500 loan over 48 months @ 3.5%.

The monthly payment will be $324.16 and we will be adding $10.08c annually just so we can round the numbers up to $3,900 of annual payments.

The point of this exercise is to show how the interest the insurance company charges is irrelevant and nothing to concern yourself about. 12 x $324.16 = $3,889.92 + $10.08 = $3900 annually. This is the amount we will also use when paying back our own private banking system, as you will see below. Click illustration for clearer/larger view.

Please click on the picture below to see that the total amount of interest that the Corner Bank will be charging for this loan over the four year term is $1,057.57.

Here is the bottom of the amortization schedule which shows the total amount of interest paid. $14,500 + $1057.57 = $15,557.57 paid to someone else’s bank.

Mr. Clients own private banking system is made up of a number of financial vehicles, the main one being a dividend paying, whole life insurance policy with a specific mutual company and designed specifically for maximum cash accumulation.

Please click on the illustration below which depicts a 46 year old male paying a $25,000 premium every year for 25 years. (My screen shot would not show any more)

Please note the guaranteed and the non-guaranteed cash value available in the policy year one, is enough to pay off the $14,500 vehicle loan. And the $25,000 has bought $544,880 of death benefit which shows Mr. Client’s love for his families future protection due his possible untimely passing.

Now let’s talk about new money and recycled money. Right now, this client has money sitting stagnant waiting for their retirement, in a risk based financial vehicle.

They are now going to move the place where it is sitting to a financial vehicle that provides easy access, use and control of his money, without penalty before 59 1/2 and without penalty after 70 1/2.

It also has guaranteed and non-guaranteed growth and is protected from litigation in many states.

So the $25,000 premium is paid with money already set aside for later.

It is just trading places so to speak. Loved that movie by the way.

It could also be paid by redirecting money that is being set aside for later also.

So Mr. Client is not coming up with ‘new’ money to fund his banking system.

It is money either already set aside or money that he was planning on setting aside for his future. The recycled money scenario will be shown further on.   Let’s keep looking at this scenario.

Note the amount of non-guaranteed cash value at the end of year five is $122,618. And in year six it is $152,404, a difference of $29,786. $27,156 is the difference on the guaranteed side.

So the $25,000 premium has generated an extra $4,786 or 19% with zero risk with the sixth years premium payment. (Please read foot note at the end of this post as to why I use the non-guaranteed assumptions rather the guaranteed values in these calculations.)

And, by-the-way, one more point to consider is ‘how much does your life insurance cost you at the end of year six?’

You have deposited $150,000 of premiums into your personal banking systems W.L. policy and you have $152,404 of cash value built up and available to borrow against.

You also have $813,355 of death benefit, which has grown by $268,475 since day one. So, how much has that death benefit really cost you? Zero! Haven’t you recouped the entire cost of that death benefit, so to speak?

So those who say Term Life is cheaper? Well, the numbers prove otherwise. Your death benefit will be generating income for you and the older you get the more it will generate.

With a term policy, the premium is an added expense where older you get the more unaffordable the premiums will be and you will never recoup any of that money.

Whole Life premiums are level or cost less and less over time.

Term and Universal Life type policies cost more and more over time due to the annual renewable term increasing cost design.

Now, Mr. client is going to refinance his car loan.

Right now, he is paying a corner bank $14,500 + interest of $1057.57.

All Mr. client will be doing is, redirecting where he continues to make those monthly payments. He is going to borrow the money that would normally be stagnating in some type of savings account or investment vehicle and instead pay off the corner bank with a lump sum principal only payment which will cancel all the rest of the interest charges he would have paid.

So, isn’t he recycling his money?  Now, instead of the corner bank holding the loan, Mr. Client’s banking system will hold the loan.

He will now be writing on the ‘Pay To The Order Of’ line MY BANK instead of CORNER BANK and the amount on the cheque will be exactly the same also, $324.16. He is just moving ownership of the loan from corner bank to his private banking system.

He is actually borrowing the money from the insurance company’s general fund. Mr. Client’s death benefit is the collateral and the amount of loan he can borrow is determined by the loan value available to him in his policy.

Please click on the picture below to enlarge this illustration which depicts a $25,000 premium being paid every year for 25 years and also one loan for $14,500 being taken from the policy in year two, because the software will not show loans in year one even though  you can actually take a loan in year one.

As stated on page one, the annual car loan repayment we are depicting is $3,900 so we can show matching loan repayments for a true comparison. This means the interest rate being charged on this car loan is the same also 3.5%.

The illustration shows a net cash outlay of $14,400 which is the net after the premium of $25,000 has been paid.

Then the loan of $14,500 is withdrawn.

Then the $3,900 has been repaid over the year. $25,000 – $14,500 =  10,500 + $3,900 = $14,400

The annual loan depicts the $14,500 – $3,900, the first 12 months of repayments = $10,600 owing at the end of year one of the loan.

Now notice the cash value at the end of year five is $122,239. If we subtract that from the original cash value amount from before the loan, which was $122,618 we get $379.00.  $122,618 – $122,239 = $379. This is the cost of the loan to the policy owner.

This $379 has reduced the death benefit by $1,047.00 also. $3,900 x 3 = $11,700 + $3,876 = $15,576 – $14,500 = $1,076 is the total interest paid back to the policy for the loan.

All of this is back in your bank (because as a policy holder you are a participating owner of the mutual company) versus the interest charged by someone else’s bank (where the stock holders are the owners), $1057.57, which is gone forever into their bank.

So some ask, what rate did the insurance company charge for the loan from their general fund? It is around 5.5% in this scenario but it does not matter how much they charged because what ever it is, most of it comes back to you anyway.

When a policy loan is requested, the interest of 5.5% (in this illustration on that loan) is deducted off the top for the term ending at the next premium due date. However, the policy continues to earn guaranteed growth and non-guaranteed dividends. Depending on the company, how these non-guaranteed dividends are calculated varies.

In addition, when you take a policy loan from the insurance company, the interest charged is based on a daily rate not an annual rate. Therefore, principal payments made during the year receive a reimbursement of the pro-rated interest charged. It is also not an amortized interest schedule that front loads the interest like a regular corner bank car loan.

So, even while Mr. Client is charged 5.75% interest for the loaned money from the insurance company,  his policy continues on it’s guaranteed growth cycle with the advantage of a possible non-guaranteed dividend as well.

The illustration above is not depicting monthly repayments of the car loan but instead show a total one time payment made at the end of the year. So the actual $379 cost would actually be less than what is shown due to the pro-rated interest being refunded through out the year.

My first conclusion is this. Mr. Client paid an extra $18.43 cents in interest even though the insurance company was charging 5.5% and he was repaying the same interest rate that the original corner bank was charging him which was 3.5%  ($1076 – $1057.57 = $18.43) but got to keep all that interest he would have paid someone else, $1076.00.

His cash value reduced by $379, but did this loan really cost him $379 versus the $1057.57 to the corner bank?

No, because he came out ahead. $1057.57 – $379 = an actual savings or recapturing of $678.57.

Remember though, the actual $379 cost will actually be less due to the pro-rated interest being refunded through out each year.

But wait, there is more…. Let’s look at the two scenario’s adding in a retirement or savings holding account in scenario one just so the $25,000 is equal in each.

As you can see in the two scenario’s, the same amount of money was in play, but where it ended up is the big difference here.
scenario 1.
Paid $25,000 into some type of holding account (retirement fund, maybe 401(k), IRA) -Cannot use this money easily so borrowed from a corner bank to buy a car.
Paid $15,557 for car to the corner bank.
The $14,500 came from outside client A’s circle of wealth however, the $15,557 came from inside client A’s circle of wealth but also left client A’s circle of wealth.
Side A. Your money. $25,000 in 401(k) + $14,500 from bank – $15,557 to pay for banks loan for car with interest = $23,943
Side B. Banks money. $14,500 but increased this to $15,557 with your money. The bank is ahead $1,057.
Scenario 2.
Paid $25,000 into holding account (flexible and liquid policy bank). Paid out $14,500 but then returned $15,576 with car repayments to your policy bank.
Side A. Your money is banks money as well. $25,000 in policy bank – $14,500 paid for car = $10,500 + $15,576 returned to your policy bank = $26,076
My second conclusion is….
The difference is $1,057 you didn’t lose and the $1,076 you would have paid to another bank anyway, but instead you paid it to yourself = $2,133. So your car really only cost you $12,367, and you have a nice death benefit as well. You will find that the $379 difference in cash value will be reduced a lot because as you pay back the loan, you are refunded the paid up front interest charges.

Some people ask, why pay myself interest?

Well, why don’t you value your money as much as you value someone else’s money? Banks value their money, that is why they charge you numerous fees and interest for numerous reasons. Isn’t it true that you either save up for something by making payments to a holding (savings) account, then you spend that money. Then you start saving up again for the next item by making payments to a holding account till you have enough to buy that next item?

OR,

You borrow money from somewhere, make payments to pay that money back, with interest, then borrow again the next time you want to purchase something and repay that also.

Now, if you merge these two scenario’s together, think about what you are now doing with your money. On top of all this, you are increasing the death benefit, which increases the pool of cash to borrow from, with a lack of penalties, restrictions and taxes to be concerned with.

Of course, you must be an honest banker or you could lapse the policy, but why would you not want to continue funding your future tax free retirement and tax free family legacy.

To be clear about why I have used the term ‘pay yourself back’; even though you are using your loan value as your credit limit total available to borrow, when you borrow you are actually borrowing the insurance companies money and your money is being used as collateral. So in actuality you owe the insurance company the money when you take a loan. However, if you pay the money back to them, your wealth increases. If you do not pay the loan back, your wealth decreases. So indirectly, you are paying back to increase your wealth or not.

Once you realize you are always paying yourself back, you may want to increase the amount of interest you charge yourself, especially as regular banks begin to increase the amount of interest they are charging. If you pay off a credit card that is charging you 12%, then charge yourself at least 12%. There are possible tax advantages to doing this if you are self employed or a business owner.

Remember also, that paying with cash for everything has a great cost to it. That cost is a lifetime of unearned interest on those spent dollars. So the reality is, we finance everything we buy. We either pay interest or we lose interest when we spend money.

Once you become your own banker, you can be earning interest while collateralizing the equivalent amount of the money you’re spending.

You can earn it by the guaranteed growth that increases in your policy whether you take loans or not.

You can earn it by the non-guaranteed dividends buying PUA’s and so growing your policy.

And, you can earn it by charging yourself the interest you would have paid the corner bank by transferring your debt to your bank instead of borrowing from the corner bank.

You can also earn it by borrowing money for anything you normally buy with a credit card and charge yourself interest because that way you are stopping the lost opportunity of that money to earn you interest over your lifetime.

Anything you pay for monthly but could get a discount if you paid it annually, borrow from your bank and pay it back with the extra interest and fees to your banking policy.

Also, your money is growing tax advantaged and is assessable tax-free if withdrawn correctly. Go to page 3 and take a look at the cash value at year 16. It is $530,119. Now take a look at the cash value at year 15, $485,371. The difference is $44,748. So you paid a premium of $25,000 but the cash value increases by $44,748. Tell me where you can earn 55.8% risk free? This percentage increases each year as you pay your $25,000 premium. Is there any reason why you would not want to keep depositing as much money as you can into a financial vehicle such as this?

Your money has to reside somewhere. Look and compare this with all the other choices. I cannot see any argument that would hold up against the fact that utilizing your policy’s cash values for your financing needs is the only way to bank. There are too many benefits with too few disadvantages.

The real value in this private banking system is that you can finance your own life, with your own money, and you capture lost interest and capture the principal payments over your entire lifetime.

The same money is also providing a beautiful death benefit.

Contact me now and start the process of Becoming Your Own Banker today.

Jennifer Bhala Hansen

845-649-7487

www.DebtDiagnosis.com

Footnote: 5 reasons why I am confident in choosing to use the non-guaranteed cash values in this scenario.

Reason 1 –  This is not a variable or universal life policy or similar. Even though these products are not placed directly in the volatile market, the gains and losses are set by the market. Also, the policy is not held by a stock company that chases short term profits or where the design of the policy in not favorable to the policy owner.
2. The mutual insurance company we use to hold the policy is very conservative with the calculations in their illustrations.
3. The numbers used are based on past interest rates that are locked in for 20, 30, 40 or more years at a time, as well as current, meaning today’s rates so are based in current reality.
4. This particular company has paid dividends consecutively for over 100 years and so I am confident due to their conservative lending, their long term outlook when it comes to investing and lending and the fact they can pay 4.7 times every policy holders death benefit if all died at the same time, that this trend will continue.
5. The companies growth over the past two years is very high, I believe due to their embracing of the banking concept and more and more people learning about it. I believe this trend of growth will also continue.
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February 26, 2011 · Jennifer · 2 Comments
Tags: , , , , , ,  · Posted in: BANKING with INSURANCE, Car Loan Comparison

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