| When it's time to buy that new car one question that | | | | car? |
| always comes up seems to be: should you pay cash | | | | Most investors would agree that an after tax return of |
| or should you finance the car? The best way to | | | | 7% is obtainable over 48 months. If you use this figure |
| answer the question is to run the numbers. So we will | | | | and invest the $30,000, at the end of 48 months the |
| use a couple of examples for the car buyer to help | | | | money compounds annually to $39,662. The car buyer |
| paint the picture. | | | | investor comes out ahead taking out the loan and |
| First of all, rates and terms of loans always vary and | | | | investing the cash! ($39662 - $34149= $5513.00). |
| these factors will determine your decision. In addition, | | | | If you run these examples with different rate |
| the after tax rate of return on the cash you would use | | | | scenarios, you will see that car loan rates have to get |
| to buy the car is important. Here is a simple example | | | | pretty high before this strategy no longer makes |
| the car buyer can use: | | | | sense! |
| You are going to buy a new car and the amount | | | | One last bit of advice. To make this scenario seem |
| needed is $30,000. Assume you want to take out a | | | | even more attractive, consider using a home equity line |
| loan. Current rates are around 6.5% as of this date. If | | | | to pay for the car. Now the rate is tax deductible. Just |
| you use a 48 month term, your total car cost is | | | | make sure you compare the after tax rates of return |
| $34,149. So, what would you have to do with the | | | | on dealer loans with the current rates on lines of credit |
| $30,000 cash to make taking out that loan | | | | against your home before you make your ultimate |
| advantageous as opposed to spending it all on that | | | | decision. |